Home

Posts Tagged ‘predatory lending’

Wednesday, July 29th, 2009

How to Not Get Bamboozled by Banks

Even though lenders are no longer throwing themselves at consumers and credit is a bit tighter than it was a couple years ago, I think it’s worthwhile to refresh everyone’s memory on warning signs of predatory lending.

Here's what to look out for when you're heading to purchase big-ticket items like cars, appliances and houses:

Warning #1:     Excessive Fees

Excessive fees can be disguised in a variety of ways, depending on what type of loan you’re seeking:

  • Credit cards: Account activation fees, membership fees, service charges, limit-extending fees, yearly fees – if your bill or credit card agreement is littered with similar costs, beware. This is a classic sign of predatory lending. In some cases, the fees charged greatly outstrip the cost of a given service.
  • Home loans: While some points and fees are standard procedure for home loans, exceeding the norm in such charges is considered predatory. To determine whether your lender is charging excessive fees, research typical fees in your area and take a look at your credit report or score (www.annualcreditreport.com).

Warning #2:     Prepayment Penalties

These are most common with mortgages, particularly subprime mortgages .

Generally, if you’re charged a penalty of some kind for repaying part of your loan before its due date, the loan is usually considered to be predatory.

Such penalties prevent you (the borrower) from saving money by minimizing the amount of interest you pay over the life of your loan.

Warning #3:     Out-of-Control Interest Rates

In general, your credit score will determine the kind of interest rates you can expect to pay – higher scores yield lower interest rates. But even for those with weak credit, some interest rates are unacceptably high.

  • Credit cards: Rates for cards vary widely, but many fall within the 15 – 22 percent range. If you’re paying much more than this, especially because of universal default or unannounced changes to your terms, you may need to contact your creditor.
  • Payday loans: These short-term, high-interest loans are infamous for having excessive interest rates. Yearly costs can be as much as 400%, which is why many states have introduced or passed legislation restricting them.
  • Credit card cash advances: These typically have wild interest rates – and are often mailed with your bill to look like personal checks. Avoid them if at all possible.

Warning #4:     Large Print and Very Small Print

Be wary of exciting “bargains” advertised in big print.

They’re usually followed by disclaimers, exceptions, costs, fees and more.

This may not be the most aggressive predatory lending technique, but it can trick those who aren’t paying careful enough attention.

Luckily, part of the Credit Cardholders’ Bill of Rights includes regulations for font size in credit card agreements.

--Have you already been "bamboozled by banks"? Learn about filing bankruptcy

Tags: , ,
Posted in Bankruptcy and Predatory Lending | No Comments »

Monday, March 23rd, 2009

Warning Signs of Predatory Lending

Predatory lending can devastate consumers.

Predatory loans can come in the form of credit card agreements, mortgages, payday loans and even bank loans.

Although there’s no surefire way to make sure a loan you get is safe, but here are some warning signs that your lender is less than trustworthy.

Lack of Transparency: Any time the terms of your loan are unclear, beware. Some loans come with terms so lengthy and dense with legal jargon that the average borrower has no way of understanding them (think of your credit card agreement).

Hidden Interest: Loan-related costs with names like “fee” or “charge” are often just interest in disguise. These can take the form of “overdraft charges” from a bank, “fees” on a payday loan, or “service charges” on a credit card.

Hidden Add-ons: Some unscrupulous lenders will sneak extra services into a loan’s terms (e.g. home appraisal fees with a mortgage) without telling the borrower that such services may be available elsewhere for less money.

Outright Lies: Writing a borrower’s “stated income” and similar tricks amount only to lying on a loan form. The only way to be certain that information in your loan documents is accurate is to fill them out (or double-check them) yourself.

Redlining: Aiming loans at specific groups of people is illegal. Studies have found that subprime loans disproportionately affected women, racial minorities, less educated people and the elderly. Other groups may be targeted for other types of predatory lending.

Exorbitant Interest: Sometimes, lenders conceal how much interest they’re charging by revealing only short-term interest rates (as with credit card offers) or by disguising interest (see above). Payday loans, for example, can come with a yearly interest rate of more than 300 percent!

The Magic of Negotiation

One way to make sure you aren’t victimized by predatory loans is to know as much as you can about them – that way, you can walk away when warning signs pop up. But keep in mind, too, that part of understanding lending is understanding that almost everything is negotiable.

Asserting yourself by trying to get a lower interest rate or a discount of some kind can signal to lenders that you know what you’re doing and will not be taken in by predatory tactics. Just be sure to do some research first so you know a reasonable rate to request.

Learn more about filing bankruptcy and how it may lessen your financial stress.

Tags: , , , ,
Posted in Bankruptcy and Predatory Lending, Setting the Record Straight about Bankruptcy | No Comments »

Tuesday, May 15th, 2007

NPR Addresses Subprime Abuses

NPR recently interviewed past employees of subprime mortgage broker Ameriquest, and even with all of the information that's come during the current mortgage foreclosure crisis, some of the stories are shocking.

Former employees describe the company not just failing to mention payment increases and upward adjustments in mortgage rates, but directly telling consumers that their mortgage rates would not increase, and in some cases even concealing adjustable rate mortgage documents in a stack of paperwork with fixed rate terms described on the first page.

Listen to the interview on NPR's website.

Tags: , , , , , ,
Posted in Mortgage Foreclosure | No Comments »

Wednesday, March 7th, 2007

National Urban League President Unveils Plan to Increase Home Ownership

National Urban League President Marc Morial tied homeownership to personal wealth, greater economic empowerment, and closing the gap between blacks and whites in the United States when he described six major policy recommendations designed to minimize obstacles standing in the way of many Americans owning their own homes.

The obstacles the National Urban League Homebuyer's Bill of Rights seeks to overcome are:

  • Lack of net savings for downpayments and closing costs
  • Lack of information on how to shop for homes and apply for loans
  • Lack of quality affordable units in livable locations; and
  • Lack of consumer protection

In recognition of skyrocketing mortgage foreclosure rates across the country, particularly in economically depressed areas where homebuyers are more likely to have been saddled with unfavorable non-traditional mortgage terms, Morial said, "It is not enough to put more Americans into their own homes if we fail to arm them with the tools needed to sustain homeownership."

The National Urban League Homebuyer's Bill of Rights makes six policy recommendations designed to overcome these obstacles:

  1. The Right to Save for Homeownership Tax-Free
  2. The Right to High-Quality Homeownership Education
  3. The Right to Turth and Transparency in Credit Reporting
  4. The Right to Production of Affordable Housing for Working Families
  5. The Right to be Free from Predatory Lending; and
  6. The Right to Aggressive Enforcement of Fair Housing Laws

Tags: , , , , , , ,
Posted in Bankruptcy and the Economy, Mortgage Foreclosure | No Comments »

Tuesday, February 20th, 2007

Skewed “News” Reports Designed to Scare Consumers Away from Bankruptcy…But Why?

A news release popped up in my email this morning headlined "Bankruptcy Won't Stop Foreclosure for Troubled Borrowers".   As an attorney who does a lot of research and writing about bankruptcy law, that came as quite a surprise to me.  After all, I knew that Chapter 13 bankruptcy could provide the relief a homeowner needed to catch up past-due payments over time while making current payments.  I also knew that Chapter 7 bankruptcy, while it didn't provide a long-term solution to foreclosure, would in most cases automatically stay foreclosure proceedings temporarily, allowing the homeowner much-needed breathing room in which to assess his options.

So what might that headline mean?  Apparently, this:  "...filing for bankruptcy will not permanently stop a lender from foreclosing on a home if the borrower stops making payments."

In other words, you can't file for bankruptcy, discharge your mortgage debt, and keep your house.  I suspect that's not a big surprise to anyone, and the fact that you don't get a free house in bankruptcy is quite a bit different from the assertion that "bankruptcy won't stop foreclosure".

So why do we so often see these misleading "news" items, spreading the idea that bankruptcy isn't a viable solution for most debtors, furthering the myth that bankruptcy will "ruin your credit for ten years"?

In the case of this particular news release, it's not hard to guess at the answer.  The only person quoted in the release, and the contact for further information about the release, is Patrick McGilvray of The Home Buying Center, LLC.  A quick glance at  The Home Buying Center's website reveals images strikingly similar to those corrugated plastic signs you see in depressed neighborhoods offering to pay cash for your home fast.  The message in this release seems to be, "Bankruptcy won't save your home, so instead you should avoid foreclosure by quickly selling it to us."

In other news items, the connection may be more subtle.  The banking and consumer credit industry has a powerful lobby and a massive public relations machine at their disposal.  And bankruptcy isn't the right answer for everyone, nor something that should be entered into without research, professional advice, and an understanding of the options.

But when direct misinformation like, "bankruptcy won't stop foreclosure" and "you won't be able to get credit for ten years after you file bankruptcy" is part of the "news", question the credibility of the source and seek out the unbiased facts.

Tags: , , , , , , ,
Posted in Bankruptcy News and Events, Mortgage Foreclosure, Setting the Record Straight about Bankruptcy | No Comments »

Friday, February 9th, 2007

Senate Committee Hears Testimony on Predatory Mortgage Lending Issues

On February 7, the U.S. Senate Committee on Banking, Housing, and Urban Affairs heard testimony from a variety of consumer advocates and mortgage industry spokespeople on the problems of predatory mortgage lending practices and their role in the mounting mortgage foreclosure claims across the country.  Although mortgage industry professionals suggested that the climbing foreclosure rate is the result of numerous possible and probably combined factors, the foreclosure rate for ARMs and other non-traditional subprime mortgages is substantially higher than that affecting traditional mortgages.

In addition, the Center for Responsible Lending recently conducted a study indicating that minority applicants are disproportionately steered toward high-cost subprime loans, even when their credit scores would have allowed them to qualify for more favorable loans or rates.

Tags: , , , , , , , , , , ,
Posted in Bankruptcy and the Economy, Mortgage Foreclosure | No Comments »