Predatory lending is a term used to describe unfair lending practices that impose abusive loan terms on borrowers during the loan origination process.  Predatory loans are typically characterized by exorbitant interest rates, burdensome fees and costs, verbal misstatements regarding the cost and terms of the loan, unclear or false disclosures regarding loan terms and costs, and high pressure sales tactics.

Examples of Predatory Lending

Predatory lending takes many forms and there are many types of predatory loans.  Examples include:

• Home Refinancing Loans (“Refi’s”):  While many banks offer legitimate refinancing options, the “subprime lending crisis” was driven in part by a flood of unfair and sometimes downright fraudulent refinancing schemes.  Many refi’s are designed to benefit the mortgage broker, lender and others collecting fees, interest and closing costs far more than the borrower.  In many cases, the “refi” has served as nothing less than a form of “equity stripping”, i.e. a method for predatory lenders and dishonest mortgage brokers to strip the homeowner’s equity in their home.  In many cases, lenders and brokers have used deception and high pressure sales tactics to achieve fat profits, leaving the homeowner with an unaffordable in excess of the value of the property.

• Purchase Money Mortgages/New Construction Loans:  Many consumers have been defrauded by predatory lenders offering “adjustable rate”  “interest only” loans and/or “balloon loans” even outside the refinancing context.  These loans are characterized by very high closing costs and payments that, even if affordable in the beginning, adjust to unaffordable rates.  In many predatory lending cases, the loan exceeds the value of the house, sometimes due to fraudulent appraisals.   Sometimes, serious misrepresentations are made to the consumer regarding how closing fees will be allocated between the parties.  Click here for information regarding a complaint recently filed in federal court (Easter District of New York)  by Schlanger & Schlanger, LLP on behalf of two homebuyers, alleging various predatory lending practices against a mortgage broker and others. (hyperlink to breaking news).

• Auto Loans:  Auto dealers and auto lenders are infamous for their predatory practices, incuding inflated interest rates, hidden fees, bogus insurance, “free” warranties that aren’t really free, etc.  For more information about common auto fraud scams, click here. (hyperlink to auto fraud page).  To see how we recently helped a victim of a predatory auto financing scam, click here (hyperlink to recent results — Richard magliocca’s case)

Consumer lawyers can use variety of state and federal consumer protection laws to help address predatory lending practices.  These consumer protection laws include for example:

• The Truth in Lending Act (TILA)
• State Unfair and Deceptive Acts and Practices (UDAP) laws.  (In New York, this includes New York General Business Law Section 349).
• The Real Estate Settlement Procedures Act (RESPA).

Predatory Lending and the Truth In Lending Act (TILA)

In many predatory lending cases, the disclosures required under the Truth In Lending Act (TILA) and other consumer protection statutes are not provided and the consumer has no idea of the overall expense of the loan until after the sale or closing.

The Truth In Lending Act (TILA) can be particularly useful because certain types of violations of the Act entitle the consumer to “rescission” of certain types of home loans, i.e. to unwind the loan.

What Lenders Must Do Under The Truth in Lending Act (TILA):

The Truth in Lending Act (TILA) applies to many types of loans, including real estate loans and auto loans.  The Act requires that the lender:

• Disclose certain information about the terms or the loan you are agreeing to.
• Disclose that information in clear, easy-to-read writing.
• Provide you with a copy of that lending disclosure.
• Make you aware of who the lender is, the amount being financed, the annual percentage rate (APR), finance charges, duration of the loan, payment schedule and penalties for late payment or prepayment.
• Provide additional early disclosures regarding Adjustable Rate Mortgages and mortgages with very high interest rates.

When the Truth in Lending Act (TILA) has been violated, the consumer may be entitled recover damages, costs, and attorney’s fees.

Borrowers have rights.  If you are a victim of predatory lending regarding a home loan, an auto loan or otherwise,  contact the consumer lawyers at Schlanger & Schlanger, LLP at 1-800-685-2500 or by filling out our consumer questionnaire.