Predatory lending (2024)

FAQs

How to prove predatory lending? ›

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.

While predatory mortgage lending isn't as common as it once was, there are bad actors today who still use the average person's lack of personal finance savvy against them.

There are several red flags you should be on the lookout for in order to steer clear of a predatory lender. Here are the main ways you can identify if a lender is trying to take advantage of you: Look for high or hidden fees. High interest rates and other fees are common tactics used to take advantage of borrowers.

If you believe you have been coerced into a predatory lending situation, you may be the victim of a reportable crime. You may be able to sue your lender if you're able to prove that local or federal laws were broken in the lending process. This includes the Truth in Lending Act or TILA.

If the CFPB detects predatory, unfair, or abusive practices like high interest rates or hidden fees, it takes action against those lenders. It was created in 2011 after the 2008 financial meltdown to tell consumers “We've got your back.”

Payday loans are among the most common forms of predatory lending. Generally, they have a $500 loan limit, very short repayment terms and APRs that can easily extend up to 400%. These types of loans can trap consumers in cycles of debt and should be avoided.

400% The annual percentage rate (APR) that payday loans often approach—one reason these loans are considered predatory products.

Consumers can be lured into dealing with predatory lenders by aggressive mail, phone, TV, and even door-to-door sales tactics. Their advertisem*nts promise lower monthly payments as a way out of debt, but don't tell potential borrowers that they will be paying more and longer.

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. It watches out for predatory lending scams and frauds.

What act prevents predatory lending? ›

Financial Code § 4970 is California's remedy to this problem. California Financial Code § 4970 et seq. became effective on July 1, 2002.

How loan flipping works. The typical situation involves a lender that coaxes and convinces a homeowner to repeatedly refinance their mortgage while also persuading them to borrow more money each time.

CDFI or Credit Union

Consider a loan from a Community Development Financial Institution (CDFI) or credit union: Capital Good Fund, a non-profit CDFI, offers a crisis loan that charges 5 percent APR, with no payments of principal or interest for the first three months.

Predatory lending is a serious crime in California that can affect the lives of the lender as well as the borrower. If you are accused of this offense, we know how to challenge the state's evidence to help demonstrate that you were engaged in legitimate business practices.

Predatory lending is designed, above all, to benefit the lender. It ignores or hinders the borrower's ability to repay a debt. Lending tactics are often deceptive and attempt to take advantage of a borrower's lack of understanding of financial terms and the rules surrounding loans.

Simply put, predatory lending becomes a crime in California when the lender manages the loan transaction to extract the maximum value for itself without regard for the borrower's ability to repay the loan.

Protect Yourself From Manipulative Lenders

If you want to file a formal complaint with the CFPB, you can: Call 1-855-411-2372. Submit a complaint online at consumerfinance.gov/complaint.