Predatory lending (2024)

FAQs

Is there any way to get out of a predatory loan? ›

If you suspect you've been a victim of predatory lending, contact the CFPB and your state consumer protection organization. The CFPB has a portal where you can submit a complaint and can also be reached by phone on weekdays at 855-411-2372. Be vigilant when it comes to taking out a mortgage or any other type of loan.

In California, all you have to show to prove that predatory lending took place is that your lender had reason to believe that you could not afford your loan amount. You can use a violation of predatory lending law as grounds to rescind your loan or as a formidable defense against foreclosure.

Predatory lending is using deceptive or unfair tactics to get a borrower to take out a loan that benefits the lender instead of the borrower. These types of loans may have high fees, high interest rates, and other terms that make it difficult for a borrower to pay back the loan.

If you are accused of predatory lending based upon sales tactics that falsely lured the borrower into obtaining — or even seeking to obtain — a loan from you, you face prosecution for this law. If convicted, you face a misdemeanor, punishable by up to six months in a county jail and a maximum $2,500 fine.

Predatory lenders make up for that risk by charging high rates, typically well above 100% APR, and structuring loans with high upfront fees. In practice, a predatory lender might: Not ask for information about your existing debts and income.

Predatory lenders typically target minorities, the poor, the elderly and the less educated.

If you have been a victim of lending abuse, let others know! Your complaint could save others from being victims, too. Call your local office of consumer affairs or your state Attorney General's office—they're listed in the Government section of the phone book. Report your experience to the Federal Trade Commission.

The FDIC addresses the problem of predatory lending by taking supervisory action, by encouraging and assisting banks to serve all sectors of their community, and by providing consumers with information to help make informed financial decisions.

These red flags could indicate a predatory loan to avoid: The offer seems too good to be true. Loan costs are difficult to determine. No one will directly answer your questions.

Common forms of predatory lending include payday loans and car title loans, although some small-dollar installment loans and other types of lending may also involve predatory practices.

What type of loan is considered predatory? ›

Predatory lending is any lending practice that imposes unfair and abusive loan terms on borrowers, including high-interest rates, high fees, and terms that strip the borrower of equity. Predatory lenders often use aggressive sales tactics and deception to get borrowers to take out loans they can't afford.

If you close the checking account to keep the lender from taking what you owe, the lender might keep trying to cash the check or withdraw money from the account anyway. That could result in you owing your bank overdraft fees. The payday lender might send your loan to collections. Then there will be more fees and costs.

California's Predatory Lending Law

California law prohibits lender schemes targeted at individuals who lack the capacity to pay. As discussed below, California law sets certain interest rate caps on loans below a certain amount. Additionally, California Financial Code § 4970 et seq.