Predatory Lending Resources | FDIC (2024)

FAQs

What is the solution to predatory lending? ›

If you are buying a home, or simply refinancing your current loan, it's important to compare different loans and the cost of each. Even if you have good credit, you can fall victim to predatory lenders. Protect yourself by shopping for loans at different banks, credit unions, and other lenders.

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.

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.

Look for high or hidden fees.

High interest rates and other fees are common tactics used to take advantage of borrowers. Be sure to read through the terms and conditions and look for sections that list the fees, penalties, and payment details.

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.

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.”

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.

Generally, the most common legal grounds to sue mortgage company for predatory lending include but aren't limited to the following: Truth in Lending Act (TILA): This federal law makes it mandatory for mortgage companies to disclose the full and true costs of a loan.

Often the victims of various predatory lending practices are the poor and the elderly, whose home constitutes their only significant financial asset.

Payday loans are one of the most common examples of predatory lending because they have high fees and short repayment terms.

What is loan flipping? ›

Loan flipping is characterized by borrowers repeatedly refinancing a loan in a short period of time. Loan flipping typically occurs when a borrower is unable to meet scheduled payments or repeatedly consolidates other unsecured debts into a new home-secured loan at the urging of a lender.

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

Predatory lenders target people struggling to pay their bills, people who have recently lost their jobs, and those subject to discriminatory lending practices because of their race, ethnicity, age, disability, or lack of higher education.

When they enter into these loans, they become enslaved to these lenders for life. The four largest predatory lenders in the country are Citigroup, AIG, Wells Fargo, and Household Finance Corporation.

Compare the interest rates and the total costs for your loan with those of other lenders. Beware of high up-front fees and percentage "points." They can turn a loan with low monthly payments into one that actually costs you more in the long run.

Alternatives to Payday or Car Title Loans

Before taking a risky and high-interest payday or car title loan, consider other options: Look into a loan from a bank, credit union, or small-loan company. These places usually have more reasonable interest rates.

Predatory lenders often target communities where few other credit options exist, which makes it more difficult for borrowers to shop around. They lure customers with aggressive sales tactics by mail, phone, TV, radio, and even door-to-door and generally use a variety of unfair and deceptive tactics to profit.