Predatory Lending comes in different forms and has numerous tentacles. A classic form involves the purchase or refinance of a home. But the incidence of predatory lending can also occur in the context of an auto or other motorized vehicle loan, a student loan, lease of rental premises or any large scale financing where the lender overreaches to a borrower who simply cannot afford the loan. Recent action and media attention to predatory lending in the mortgage industry has hit "sub-prime" lenders hard, and has called much needed attention to this devastating practice. Certain federal and state laws may be used to seek redress of predatory lending practices in its various forms.
One common "red flag" that indicates a predatory loan is an appraisal that is far above the true price for the property. An over-appraisal of a property can lead to the alleged justification for a grossly inflated loan amount and the consummation of a loan that either the consumer simply cannot afford, or one that is a grossly unfair windfall to the lender and/or mortgage broker. Other red-flags include: newly constructed housing developments with home sales for little money down; multiple mortgage refinances with high fees; home repair schemes involving mortgage refinancing; mortgage financing of debt consolidation; high-cost and high fee loans, credit life and/or disability insurance sold with the mortgage; fees paid to an unknown mortgage broker; "stated income" or "no documentation" loans where the loan was not based on a consumer's income or ability to repay; and undisclosed or excessive charges for title insurance.
While predatory lending was prevalent pre-2008, such claims are largely obsolete today. Easy lending standards are essentially gone in the home mortgage arena due to the exposure of bad bank practices before the financial crisis of 2008-2009. The defense of predatory lending in mortgage foreclosure cases is also not currently well received by courts. Though it may have been applicable at the origination of the loan, the current mortgage modification process was to, in theory, remedy the sins of bankers’ past.
Notwithstanding the above, the spectre of predatory lending is fully present in auto loans today. The days of “no credit, bad credit, or prior bankruptcy” are back and auto dealers are overjoyed to finance a car to anyone “with a breath.” Numerous cases come to this office where consumers are locked in to auto loans whose payments are at or close to 100% of their monthly income. This often can be achieved by falsifying a consumer’s credit application to the lender who turns a blind eye to the lies a dealer’s finance manager enters on the application. The result is an inevitable repossession of the car by the lender from a consumer who could not afford the payments from the very beginning. Likewise, the damage to a consumer’s credit report is deep and long-term. No new lender wants to see that consumer had to give up a car for non-payment.
Credit card lenders are no better. The attitude of these can also be “anyone with a pulse” can obtain an account. Luckily, the negotiation of a delinquent credit card debt is often easier under certain circumstances sometimes out, but mainly inside the courthouse.
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