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Predatory lending refers to unethical practices conducted by lending organizations during a
loan origination Loan origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application ...
process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 audit report from the office of inspector general of the US
Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...
(FDIC) broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers", though "unfair" and "abusive" were not specifically defined. Though there are laws against some of the specific practices commonly identified as predatory, various federal agencies use the phrase as a catch-all term for many specific illegal activities in the
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
industry. Predatory lending should not be confused with predatory mortgage servicing which is mortgage practices described by critics as unfair, deceptive, or fraudulent practices during the loan or mortgage servicing process, post loan origination. One less contentious definition of the term is proposed by an investing website as "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against". Other types of lending sometimes also referred to as predatory include
payday loan A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
s, certain types of
credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s, mainly
subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...
, or other forms of (again, often subprime)
consumer debt In economics, consumer debt is the amount owed by consumers (as opposed to amounts owed by businesses or governments). It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. In macroeconomic terms, it is ...
, and overdraft loans, when the interest rates are considered unreasonably high. Although predatory lenders are most likely to target the less educated, the poor, racial minorities, and the elderly, victims of predatory lending are represented across all demographics. The continued occurrence of predatory lending can be viewed as a litmus test for the effectiveness of philanthropic lending that aims to foster entrepreneurship. Where such philanthropic lending initiatives (
microfinance Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; savings ...
) are widely available, loan sharks and other predatory lenders should not continue to thrive. Predatory lending typically occurs on loans backed by some kind of
collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...
, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or
foreclosed Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Formally, a mortg ...
property. Lenders may be accused of tricking a borrower into believing that an interest rate is lower than it actually is, or that the borrower's ability to pay is greater than it actually is. The lender, or others as agents of the lender, may well profit from repossession or foreclosure upon the collateral. Predatory lending is often compared to (but not to be confused with)
loan sharking A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law. Description Because loan sharks operate mostly illegally, they cannot reasonably ...
, however a key the difference between the two is that loan sharks do not seriously attempt to operate within the law.


Abusive or unfair lending practices

There are many lending practices which have been called abusive and labeled with the term "predatory lending". There is a great deal of dispute between lenders and consumer groups as to what exactly constitutes "unfair" or "predatory" practices, but the following are sometimes cited: * Unjustified
risk-based pricing Risk-based pricing is a methodology adopted by many lenders in the mortgage and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees. The interest rate on a ...
. This is the practice of charging more (in the form of higher interest rates and fees) for extending credit to borrowers identified by the lender as posing a greater credit risk. The lending industry argues that risk-based pricing is a legitimate practice; since a greater percentage of loans made to less creditworthy borrowers can be expected to go into default, higher prices are necessary to obtain the same yield on the portfolio as a whole. Some consumer groups argue that higher prices paid by more vulnerable consumers cannot always be justified by increased credit risk. * Single-premium
credit insurance Credit insurance refers to several kinds of insurance relating to financial credit: * Trade credit insurance, purchased by businesses to insure payment of credit ''extended by'' the business *Payment protection insurance, purchased by consumers to ...
. This is the purchase of insurance which will pay off the loan in case the homebuyer dies. It is more expensive than other forms of insurance because it does not involve any medical checkups, but customers almost always are not shown their choices, because usually the lender is not licensed to sell other forms of insurance. In addition, this insurance is usually financed into the loan which causes the loan to be more expensive, but at the same time encourages people to buy the insurance because they do not have to pay up front. * Failure to present the loan price as negotiable. Many lenders will negotiate the price structure of the loan with borrowers. In some situations, borrowers can even negotiate an outright reduction in the interest rate or other charges on the loan. Consumer advocates argue that borrowers, especially unsophisticated borrowers, are not aware of their ability to negotiate and might even be under the mistaken impression that the lender is placing the borrower's interests above its own. Thus, many borrowers do not take advantage of their ability to negotiate. * Failure to clearly and accurately disclose terms and conditions, particularly in cases where an unsophisticated borrower is involved. Mortgage loans are complex transactions involving multiple parties and dozens of pages of legal documents. In the most egregious of predatory cases, lenders or brokers have not only misled borrowers but have also altered documents after they have been signed. * Short-term loans with disproportionally high fees, such as
payday loan A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
s, credit card late fees, checking account overdraft fees, and
Tax Refund Anticipation Loan Refund anticipation loan (RAL) is a short-term consumer loan in the United States provided by a third party against an expected tax refund for the duration it takes the tax authority to pay the refund. The loan term was usually about two to three w ...
s, where the fee paid for advancing the money for a short period of time works out to an annual interest rate significantly in excess of the market rate for high-risk loans. The originators of such loans dispute that the fees are interest. * Servicing agent and
securitization Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling ...
abuses. The mortgage servicing agent is the entity that receives the mortgage payment, maintains the payment records, provides borrowers with account statements, imposes late charges when the payment is late, and pursues delinquent borrowers. A securitization is a financial transaction in which assets, especially debt instruments, are pooled and securities representing interests in the pool are issued. Most loans are subject to being bundled and sold, and the rights to act as servicing agent sold, without the consent of the borrower. A federal statute requires notice to the borrower of a change in servicing agent, but does not protect the borrower from being held delinquent on the
note Note, notes, or NOTE may refer to: Music and entertainment * Musical note, a pitched sound (or a symbol for a sound) in music * ''Notes'' (album), a 1987 album by Paul Bley and Paul Motian * ''Notes'', a common (yet unofficial) shortened version ...
for payments made to the servicing agent who fails to forward the payments to the owner of the note, especially if that servicing agent goes bankrupt, and borrowers who have made all payments on time can find themselves being foreclosed on and becoming unsecured creditors of the servicing agent. Foreclosures can sometimes be conducted without proper notice to the borrower. In some states (see Texas Rule of Civil Procedure 746), there is no defense against eviction, forcing the borrower to move and incur the expense of hiring a lawyer and finding another place to live while litigating the claim of the "new owner" to own the house, especially after it is resold one or more times. When the debtor demands, under the
best evidence rule The best evidence rule is a legal principle that holds an original of a document as superior evidence. The rule specifies that secondary evidence, such as a copy or facsimile, will be not admissible if an original document exists and can be obtai ...
, that the current claimed note owner produce the original note with the debtor's signature on it, the note owner typically is unable or unwilling to do so, and tries to establish his or her claim with an affidavit that it is the owner, without proving it is the "holder in due course", the traditional standard for a debt claim, and the courts often allow them to do that. In the meantime, the note continues to be traded, its physical whereabouts difficult to discover. OCC Advisory Letter AL 2003-2 describes predatory lending as including the following: * Loan "flipping" – frequent refinancings that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products; * Refinancings of special subsidized mortgages that result in the loss of beneficial loan terms; * "Packing" of excessive and sometimes "hidden" fees in the amount financed; * Using loan terms or structures – such as
negative amortization In finance, negative amortization (also known as NegAm, deferred interest or graduated payment mortgage) occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan ...
– to make it more difficult or impossible for borrowers to reduce or repay their indebtedness; * Using
balloon payment A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity.Wiedemer, John P, ''Real Estate Finance, 8th Edition'', p 109-110 The final payment is called a ''balloon pa ...
s to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures; * Targeting inappropriate or excessively expensive credit products to older borrowers, to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms; * Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions; * The offering of single premium credit life insurance; and * The use of mandatory arbitration clauses.


Predatory lending towards minority groups

Because many minority communities have been excluded from loans in the past, they are and have been more vulnerable to deception. Oftentimes, they are targeted because of these vulnerabilities. Organizations and agencies including
ACORN The acorn, or oaknut, is the nut of the oaks and their close relatives (genera ''Quercus'' and '' Lithocarpus'', in the family Fagaceae). It usually contains one seed (occasionally two seeds), enclosed in a tough, leathery shell, and borne ...
,
HUD Hud or HUD may refer to: Entertainment * ''Hud'' (1963 film), a 1963 film starring Paul Newman * ''Hud'' (1986 film), a 1986 Norwegian film * ''HUD'' (TV program), or ''Heads Up Daily'', a Canadian e-sports television program Places * Hud, Fa ...
, the
American Civil Liberties Union The American Civil Liberties Union (ACLU) is a nonprofit organization founded in 1920 "to defend and preserve the individual rights and liberties guaranteed to every person in this country by the Constitution and laws of the United States". T ...
,
United for a Fair Economy United for a Fair Economy (UFE) is an American left-leaning nonprofit organization. Co-founded by Chuck Collins and Felice Yeskel in 1995, it describes itself as "raising awareness that concentrated wealth and power undermine the economy, corrup ...
and more prove that predatory loans are disproportionately made in poor and minority neighborhoods. Brokers and lenders preyed on these neighborhoods with the knowledge that these people were often denied for loans and the demand for loans were high. Lenders called these neighborhoods never-never land. This created the subprime predatory lending world. Subprime lenders specialize in B, C, and D paper. Predatory lending is the practice of overcharging a borrower for rates and fees, average fee should be 1%, these lenders were charging borrowers over 5%. Consumers without challenged credit loans should be underwritten with prime lenders. In 2004, 69% of borrowers were from subprime lending. The 2007 mortgage drop and economy fail were from over lending. Organizations such as
AARP AARP (formerly called the American Association of Retired Persons) is an interest group in the United States focusing on issues affecting those over the age of fifty. The organization said it had more than 38 million members in 2018. The magazin ...
,
Inner City Press Inner City Press is a public interest organization founded by Matthew Lee (lawyer), Matthew Lee, who serves as executive director. Inner City Press is best known for its investigations of the banking industry's treatment of low-income communities ...
, and ACORN have worked to stop what they describe as predatory lending. ACORN has targeted specific companies such as
HSBC Finance HSBC Finance Corporation is a financial services company and a subsidiary of HSBC Holdings. It is the sixth-largest issuer of MasterCard and Visa credit cards in the United States. HSBC Finance Corporation was formed from the legal entity that ...
, successfully forcing them to change their practices. Some
subprime lending In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...
practices have raised concerns about
mortgage discrimination Mortgage discrimination or ''mortgage lending discrimination'' is the practice of banks, governments or other lending institutions denying loans to one or more groups of people primarily on the basis of race, ethnic origin, sex or religion. Instan ...
on the basis of race.
Study Finds Disparities in Mortgages by Race
'
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
By Manny Fernandez Published: October 15, 2007
African Americans and other minorities are being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts. Even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender, though not necessarily a sub-prime loan.


Other targeted groups

In addition, studies by leading consumer groups have concluded that women have become a key component to the subprime mortgage crunch. Professor Anita F. Hill wrote that a large percentage of first-time home buyers were women, and that loan officers took advantage of the lack of financial knowledge of many female loan applicants. Consumers believe that they are protected by consumer protection laws, when their lender is really operating wholly outside the laws. Refer to 15 U.S.C. 1601 and 12 C.F.R. 226. Media investigations have disclosed that mortgage lenders used bait-and-switch salesmanship and fraud to take advantage of borrowers during the home-loan boom. In February 2005, for example, reporters Michael Hudson and Scott Reckard broke a story in the Los Angeles Times about "boiler room" sales tactics at Ameriquest Mortgage, the nation's largest subprime lender. Hudson and Reckard cited interviews and court statements by 32 former Ameriquest employees who said the company had abused its customers and broken the law, "deceiving borrowers about the terms of their loans, forging documents, falsifying appraisals and fabricating borrowers' income to qualify them for loans they couldn't afford". Ameriquest later agreed to pay a $325 million predatory lending settlement with state authorities across the nation.


Disputes over predatory lending

Some subprime lending advocates, such as the National Home Equity Mortgage Association (NHEMA), say many practices commonly called "predatory," particularly the practice of risk-based pricing, are not actually predatory, and that many laws aimed at reducing "predatory lending" significantly restrict the availability of mortgage finance to lower-income borrowers. Such parties consider ''predatory lending'' a pejorative term.


Underlying issues

There are many underlying issues in the predatory lending debate: * Judicial practices: Some argue that much of the problem arises from a tendency of the courts to favor lenders, and to shift the burden of proof of compliance with the terms of the debt instrument to the debtor. According to this argument, it should not be the duty of the borrower to make sure his or her payments are getting to the current note-owner, but to make evidence that all payments were made to the last known agent for collection sufficient to block or reverse repossession or foreclosure, and eviction, and to cancel the debt if the current note owner cannot prove he or she is the "holder in due course" by producing the actual original debt instrument in court. *
Risk-based pricing Risk-based pricing is a methodology adopted by many lenders in the mortgage and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees. The interest rate on a ...
: The basic idea is that borrowers who are thought of as more likely to default on their loans should pay higher interest rates and finance charges to compensate lenders for the increased risk. In essence, high returns motivate lenders to lend to a group they might not otherwise lend to – "subprime" or risky borrowers. Advocates of this system believe that it would be unfair – or a poor business strategy – to raise interest rates globally to accommodate risky borrowers, thus penalizing low-risk borrowers who are unlikely to default. Opponents argue that the practice tends to disproportionately create capital gains for the affluent while oppressing working-class borrowers with modest financial resources. Some people consider risk-based pricing to be unfair in principle. Lenders contend that interest rates are generally set fairly considering the risk that the lender assumes, and that competition between lenders will ensure availability of appropriately-priced loans to high-risk customers. Still others feel that while the rates themselves may be justifiable with respect to the risks, it is irresponsible for lenders to encourage or allow borrowers with credit problems to take out high-priced loans. For all of its pros and cons, risk-based pricing remains a universal practice in bond markets and the insurance industry, and it is implied in the stock market and in many other open-market venues; it is only controversial in the case of consumer loans. *
Competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
: Some believe that risk-based pricing is fair but feel that many loans charge prices far above the risk, using the risk as an excuse to overcharge. These criticisms are not levied on all products, but only on those specifically deemed predatory. Proponents counter that competition among lenders should prevent or reduce overcharging. * Financial education: Many observers feel that competition in the markets served by what critics describe as "predatory lenders" is not affected by price because the targeted consumers are completely uneducated about the
time value of money The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The t ...
and the concept of
Annual percentage rate The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mort ...
, a different measure of price than what many are used to. Recent research looked at a legislative experiment in which the State of Illinois, which required “high-risk” mortgage applicants acquiring or refinancing properties in 10 specific zip codes to submit loan offers from state-licensed lenders to review by HUD-certified financial counselors. The experiment found that the legislation pushed some borrowers to choose less risky loan products in order to avoid counseling. *
Caveat emptor ''Caveat emptor'' (; from ''caveat'', "may he/she beware", a subjunctive form of ''cavēre'', "to beware" + ''ēmptor'', "buyer") is Latin for "Let the buyer beware". It has become a proverb in English. Generally, ''caveat emptor'' is the contrac ...
: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if there is no evidence that it attempted to deceive the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has an almost fiduciary duty to advise the borrower that funds can be obtained more cheaply. Also at issue are certain financial products which appear to be profitable only due to
adverse selection In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might participate selectively in trades at the expe ...
or a lack of knowledge on the part of the customers relative to the lenders. For example, some people allege that
credit insurance Credit insurance refers to several kinds of insurance relating to financial credit: * Trade credit insurance, purchased by businesses to insure payment of credit ''extended by'' the business *Payment protection insurance, purchased by consumers to ...
would not be profitable to lending companies if only those customers who had the right "fit" for the product actually bought it (i.e., only those customers who were not able to get the generally cheaper term life insurance). Regardless, the majority of U.S. courts have refused to treat the lender-borrower relationship as a fiduciary one and declined to impose a
duty of care In tort law, a duty of care is a legal obligation that is imposed on an individual, requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be establis ...
upon lenders in the making of loans. Thus, once the lender has complied with all relevant statutory disclosure obligations, it remains solely the borrower's problem to ascertain whether the loan they are getting is the right fit for them.


Predatory borrowing

In an article in the January 17, 2008, ''New York Times'',
George Mason University George Mason University (George Mason, Mason, or GMU) is a public research university in Fairfax County, Virginia with an independent City of Fairfax, Virginia postal address in the Washington, D.C. Metropolitan Area. The university was origin ...
economics professor
Tyler Cowen Tyler Cowen (; born January 21, 1962) is an American economist, columnist and blogger. He is a professor at George Mason University, where he holds the Holbert L. Harris chair in the economics department. He hosts the economics blog ''Marginal R ...
described "predatory borrowing" as potentially a larger problem than predatory lending: :"As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers." Mortgage applications are usually completed by mortgage brokers or lenders' in-house loan officers, rather than by borrowers themselves, making it difficult for borrowers to control the information that was submitted with their applications. A
stated income loan A stated income loan is a mortgage where the lender does not verify the borrower's income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, ...
application is done by the borrower, and no proof of income is needed. When the broker files the loan, they have to go by whatever income is stated. This opened the doors for borrowers to be approved for loans that they otherwise would not qualify for, or afford. However, lawsuits and testimony from former industry insiders indicated that mortgage company employees frequently were behind overstatements of borrower income on mortgage applications. Borrowers had little or no ability to manipulate other key data points that were frequently falsified during the mortgage process. These included credit scores, home appraisals and loan-to-value ratios. These were all factors that were under the control of mortgage professionals. In 2012, for example, New York Attorney General Eric Schneiderman reached a $7.8 million settlement of allegations that a leading appraisal management firm had helped inflate real estate appraisals on a wide scale basis in order to help a major lender push through more loan deals. The attorney general office's lawsuit alleged that eAppraiseIT, which did more than 260,000 appraisals nationally for Washington Mutual, caved to pressure from WaMu loan officers to select pliable appraisers who were willing to submit inflated property valuations. Several commentators have dismissed the notion of "predatory borrowing", accusing those making this argument as being apologists for the lack of lending standards and other excesses during the credit bubble. Predatory servicing is also a component of predatory lending, characterized by unfair, deceptive, or fraudulent practices by a lender or another company that services a loan on behalf of the lender, after the loan is granted. Those practices include also charging excessive and unsubstantiated fees and expenses for servicing the loan, wrongfully disclosing credit defaults by a borrower, harassing a borrower for repayment and refusing to act in good faith in working with a borrower to effectuate a mortgage modification as required by federal law.


Legislation

In many countries, legislation aims to control this, but research has found ambiguous results, including finding that high-cost mortgage applications can possibly rise after adoption of laws against predatory lending.


United States

Many laws at both the Federal and state government level are aimed at preventing predatory lending. Although not specifically anti-predatory in nature, the Federal
Truth in Lending Act The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing ...
requires certain disclosures of APR and
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
terms. Also, in 1994 section 32 of the Truth in Lending Act, entitled the Home Ownership and Equity Protection Act of 1994, was created. This law is devoted to identifying certain high-cost, potentially predatory
mortgage loan A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...
s and reining in their terms. Twenty-five states have passed anti-predatory lending laws.
Arkansas Arkansas ( ) is a landlocked state in the South Central United States. It is bordered by Missouri to the north, Tennessee and Mississippi to the east, Louisiana to the south, and Texas and Oklahoma to the west. Its name is from the Osage ...
,
Georgia Georgia most commonly refers to: * Georgia (country), a country in the Caucasus region of Eurasia * Georgia (U.S. state), a state in the Southeast United States Georgia may also refer to: Places Historical states and entities * Related to the ...
,
Illinois Illinois ( ) is a U.S. state, state in the Midwestern United States, Midwestern United States. Its largest metropolitan areas include the Chicago metropolitan area, and the Metro East section, of Greater St. Louis. Other smaller metropolita ...
,
Maine Maine () is a state in the New England and Northeastern regions of the United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Canadian provinces of New Brunswick and Quebec to the northeast and north ...
,
Massachusetts Massachusetts (Massachusett language, Massachusett: ''Muhsachuweesut assachusett writing systems, məhswatʃəwiːsət'' English: , ), officially the Commonwealth of Massachusetts, is the most populous U.S. state, state in the New England ...
,
North Carolina North Carolina () is a state in the Southeastern region of the United States. The state is the 28th largest and 9th-most populous of the United States. It is bordered by Virginia to the north, the Atlantic Ocean to the east, Georgia and So ...
,
New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * '' ...
,
New Jersey New Jersey is a state in the Mid-Atlantic and Northeastern regions of the United States. It is bordered on the north and east by the state of New York; on the east, southeast, and south by the Atlantic Ocean; on the west by the Delaware ...
,
New Mexico ) , population_demonym = New Mexican ( es, Neomexicano, Neomejicano, Nuevo Mexicano) , seat = Santa Fe , LargestCity = Albuquerque , LargestMetro = Tiguex , OfficialLang = None , Languages = English, Spanish ( New Mexican), Navajo, Ker ...
and
South Carolina )''Animis opibusque parati'' ( for, , Latin, Prepared in mind and resources, links=no) , anthem = " Carolina";" South Carolina On My Mind" , Former = Province of South Carolina , seat = Columbia , LargestCity = Charleston , LargestMetro = ...
are among those states considered to have the strongest laws. Other states with predatory lending laws include:
California California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
,
Colorado Colorado (, other variants) is a state in the Mountain West subregion of the Western United States. It encompasses most of the Southern Rocky Mountains, as well as the northeastern portion of the Colorado Plateau and the western edge of t ...
,
Connecticut Connecticut () is the southernmost state in the New England region of the Northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, New York to the west, and Long Island Sound to the south. Its cap ...
,
Florida Florida is a state located in the Southeastern region of the United States. Florida is bordered to the west by the Gulf of Mexico, to the northwest by Alabama, to the north by Georgia, to the east by the Bahamas and Atlantic Ocean, and to ...
,
Kentucky Kentucky ( , ), officially the Commonwealth of Kentucky, is a state in the Southeastern region of the United States and one of the states of the Upper South. It borders Illinois, Indiana, and Ohio to the north; West Virginia and Virginia to ...
,
Maine Maine () is a state in the New England and Northeastern regions of the United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Canadian provinces of New Brunswick and Quebec to the northeast and north ...
,
Maryland Maryland ( ) is a state in the Mid-Atlantic region of the United States. It shares borders with Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware and the Atlantic Ocean to ...
,
Nevada Nevada ( ; ) is a U.S. state, state in the Western United States, Western region of the United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast, and Utah to the east. N ...
,
Ohio Ohio () is a state in the Midwestern region of the United States. Of the fifty U.S. states, it is the 34th-largest by area, and with a population of nearly 11.8 million, is the seventh-most populous and tenth-most densely populated. The sta ...
,
Oklahoma Oklahoma (; Choctaw language, Choctaw: ; chr, ᎣᎧᎳᎰᎹ, ''Okalahoma'' ) is a U.S. state, state in the South Central United States, South Central region of the United States, bordered by Texas on the south and west, Kansas on the nor ...
,
Oregon Oregon () is a U.S. state, state in the Pacific Northwest region of the Western United States. The Columbia River delineates much of Oregon's northern boundary with Washington (state), Washington, while the Snake River delineates much of it ...
,
Pennsylvania Pennsylvania (; ( Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, ...
,
Texas Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
,
Utah Utah ( , ) is a state in the Mountain West subregion of the Western United States. Utah is a landlocked U.S. state bordered to its east by Colorado, to its northeast by Wyoming, to its north by Idaho, to its south by Arizona, and to it ...
,
Wisconsin Wisconsin () is a state in the upper Midwestern United States. Wisconsin is the 25th-largest state by total area and the 20th-most populous. It is bordered by Minnesota to the west, Iowa to the southwest, Illinois to the south, Lake M ...
, and
West Virginia West Virginia is a state in the Appalachian, Mid-Atlantic and Southeastern regions of the United States.The Census Bureau and the Association of American Geographers classify West Virginia as part of the Southern United States while the Bur ...
. These laws usually describe one or more classes of "high-cost" or "covered" loans, which are defined by the fees charged to the borrower at origination or the APR. While lenders are not prohibited from making "high-cost" or "covered" loans, a number of additional restrictions are placed on these loans, and the penalties for noncompliance can be substantial.


See also

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Alternative financial services An alternative financial service (AFS) is a financial service provided outside traditional banking institutions, on which many low-income individuals depend. In developing countries, these services often take the form of microfinance. In develop ...
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Bank fraud Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many ins ...
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Debt bondage Debt bondage, also known as debt slavery, bonded labour, or peonage, is the pledge of a person's services as security for the repayment for a debt or other obligation. Where the terms of the repayment are not clearly or reasonably stated, the pe ...
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Debt-trap diplomacy Debt-trap diplomacy is an international financial relationship where a creditor country or institution extends debt to a borrowing nation partially, or solely, to increase the lender's political leverage. The creditor country is said to extend ...
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Loan shark A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law. Description Because loan sharks operate mostly illegally, they cannot reasonably ...
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Mortgage fraud Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property. Criminal offenses may be prosecuted in eith ...
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Overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
protection loans *
Poverty industry The terms poverty industry or poverty business refer to a wide range of money-making activities that attract a large portion of their business from the poverty, poor. Businesses in the poverty industry often include payday loan centers, pawnbroker, ...
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Refund anticipation loan Refund anticipation loan (RAL) is a short-term consumer loan in the United States provided by a third party against an expected tax refund for the duration it takes the tax authority to pay the refund. The loan term was usually about two to three w ...
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Securitization Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling ...
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Settlement (finance) Settlement is the "final step in the transfer of ownership involving the physical exchange of securities or payment". After settlement, the obligations of all the parties have been discharged and the transaction is considered complete. In the con ...
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Title loan A title loan (also known as a car title loan) is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the ...
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Usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is ch ...


References


Further reading

*


External links

* Bell, Alexis. (2010).
Mortgage Fraud & the Illegal Property Flipping Scheme: A Case Study of United States v. Quintero-Lopez

Don't be a victim of loan fraud
from
HUD Hud or HUD may refer to: Entertainment * ''Hud'' (1963 film), a 1963 film starring Paul Newman * ''Hud'' (1986 film), a 1986 Norwegian film * ''HUD'' (TV program), or ''Heads Up Daily'', a Canadian e-sports television program Places * Hud, Fa ...
.
Protect yourself in the loan process
from the California Department of Real Estate.
Federal Citizen Information Center
site has links to state and federal regulatory agencies and other consumer information provided by the United States General Services Administration.
Challenges in combating predatory lending
from The United States General Accounting Office.

article from
Dollars & Sense ''Dollars & Sense'' is a magazine focusing on economics from a progressive perspective, published by Dollars & Sense, Inc, which also publishes textbooks in the same genre. ''Dollars & Sense'' describes itself as publishing "economic news and ana ...
magazine
Americans for Fairness in Lending (AFFIL)
nonprofit consumer organization with news, articles and advice
''Capitalism without values''
Clint Reilly on the predatory lending scandal.

{{DEFAULTSORT:Predatory Lending Banking Urban politics in the United States United States housing bubble Loans Psychological manipulation Abuse Disinformation Deception Ethically disputed business practices