Predatory Lending And Consumer Debt
While people should be expected to take ownership of their choices and responsibility for the debts they acquire, falling into unmanageable debt cannot always be blamed on the borrower. In some situations, one of the main factors in the borrower defaulting on the debt is that he is the victim of predatory lending.
Predatory lending is a process through which some creditors extend credit to people they know are credit risks. The creditors then load the loans with unfair or abusive terms, and coerce the borrower into accepting the loans under those terms. Creditors who engage in predatory lending are aware that the debtor may not be able to afford the loan.
For example, the terms of the loans can allow for low initial rates of interest, and then slowly or suddenly increase until the borrower can no longer afford the payments. The creditor offers the loan in order to get some money, often from inflated interest rates, from the borrower before the borrower defaults.
In many cases, creditors engaged in the predatory lending target minority communities and other groups who are not likely to have a lot of credit options. Most people associate predatory lending with mortgages, and in fact, predatory lending was rampant in the mortgage lending arena, and was a large factor in the subprime mortgage crisis in 2008. However, predatory lending can also apply in other areas, and is also very common with payday loans.
Predatory lending can be a defense to foreclosure and other debt actions by creditors. A borrower may use this defense if the creditor misrepresented loan terms, failed to make necessary disclosures, increased fees and costs without prior notice or disclosures, and otherwise engaged in such misconduct. Using predatory lending as a defense can help the borrower avoid the negative consequences of losing in a foreclosure or other lawsuit filed by a creditor. In some cases, if the creditor engaged in particularly bad practices, the borrower may be awarded damages in compensation for the creditors’ actions.
Borrowers can protect themselves from predatory lending by taking certain steps. Borrowers should never sign any loan documents or agreements that they do not understand. If possible, borrowers should have an attorney look at the loan documents before signing them to ensure the terms are in the borrower’s best interest. Borrowers should be careful with loans that have balloon payments or high interest rates, especially if the borrower is unsure he can afford the terms.
Borrowers should also look out for some signs that should alert them to lenders who may be engaged in predatory lending. For example, lenders who try to sell an additional loan or financial products, especially if they insist that the products are mandatory to the loan.
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Predatory lending can lead a borrower to default on a bad loan, which can ruin the borrower’s credit and lead the borrower to become a regular target for more unscrupulous creditors. Borrowers who were subject to predatory lending or were forced to take on debt through coercive or high pressure illegal tactics may have a defense to paying the debt. If you believe you were a victim of predatory lending, contact an experienced Philadelphia predatory lending lawyer at ConsumerLawPa.com.