Avoid Predatory Lenders

Predatory lending is a phrase for unethical lending practices committed by a financial institution or broker. Many predatory lending practices are illegal under federal and state laws. The Federal Reserve views predatory lending as a broad set of behaviors involving unfair, deceptive or fraudulent practices such as:

• Making unaffordable loans based on the assets of the borrowers, rather than on the borrower's ability to repay an obligation.
• Inducing a borrower to refinance a loan repeatedly to charge high points and fees each time the loan is refinanced ("loan flipping").
• Engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

Predatory loans often contain pre-paid insurance premiums, balloon payments, negative amortization, unilateral loan call provisions, mandatory arbitrations clauses, or interest rate increases triggered by a borrower's default. Predatory lenders also engage in deceptive practices with regard to loan prepayment penalties or often make loans in which the lenders suspect that the borrower has little or no ability to repay.