AD 712 Term Paper
Running head: PREDATORY LENDING PRACTICES
Predatory Lending Practices
Katrina White
Boston University
Predatory Lending Practices Predatory lending was once a major problem in the United States. This was one of the reasons for the credit crisis in 2008. Unfortunately there were a few companies that were involved in these illegal practices which will be discussed in further detail later. There are different tactics used in predatory lending and several laws were developed to help prevent future predatory lending issues. What is predatory lending?
Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through coercive, deceptive, exploitative, or unscrupulous actions for a loan that a borrower can’t afford, doesn’t need, or doesn’t want. Predatory lending benefits the lender, not the borrower by ignoring or hindering the borrower’s ability to repay the debt. These lending tactics attempt to take advantage of a borrower’s lack of understanding about loans, terms, or finances in general (Krulick, 2014). Who can be targeted in these illegal practices?
Predatory lenders typically target minorities, poor, elderly, and less educated people. People who need immediate cash are also targeted. For example people that need to pay medical bills, need to make a home repair, or someone that needs help making a car payment. People with credit issues or people who recently lost their jobs can be targets as well. The credit issues often disqualify borrowers from conventional loans or lines of credit but yet they have substantial equity in their homes. Predatory lending can take place in many forms including payday loans, car loans, tax refund anticipation loans, or any type of consumer debt. Over the past several years, predatory lending practices were prevalent in the area of home mortgages. Since home loans are
Predatory Lending Practices
Katrina White
Boston University
Predatory Lending Practices Predatory lending was once a major problem in the United States. This was one of the reasons for the credit crisis in 2008. Unfortunately there were a few companies that were involved in these illegal practices which will be discussed in further detail later. There are different tactics used in predatory lending and several laws were developed to help prevent future predatory lending issues. What is predatory lending?
Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through coercive, deceptive, exploitative, or unscrupulous actions for a loan that a borrower can’t afford, doesn’t need, or doesn’t want. Predatory lending benefits the lender, not the borrower by ignoring or hindering the borrower’s ability to repay the debt. These lending tactics attempt to take advantage of a borrower’s lack of understanding about loans, terms, or finances in general (Krulick, 2014). Who can be targeted in these illegal practices?
Predatory lenders typically target minorities, poor, elderly, and less educated people. People who need immediate cash are also targeted. For example people that need to pay medical bills, need to make a home repair, or someone that needs help making a car payment. People with credit issues or people who recently lost their jobs can be targets as well. The credit issues often disqualify borrowers from conventional loans or lines of credit but yet they have substantial equity in their homes. Predatory lending can take place in many forms including payday loans, car loans, tax refund anticipation loans, or any type of consumer debt. Over the past several years, predatory lending practices were prevalent in the area of home mortgages. Since home loans are
References: Bond, P., Musto, D.K., & Yilmaz, B. (2009). Predatory mortgage lending. Journal of Financial Economics, 94(3), 412-427. Brumback, K. (2012). HSBC sued by Atlanta-area counties over predatory lending claims. Retrieved from http://www.huffingtonpost.com/2012/12/25/hsbc-sued-predatory lending_n_2362436.html?utm_hp_ref=@money123 Caggiano, J.R., Franzen, T.G., & Dozier, J.L. (2010). Developments in state and federal mortgage lending laws: Predatory lending and beyond. Business Lawyer, 65(2), 583-593. Hamilton, R. (n.d.). Consumer laws on predatory lending. Retrieved from http://www.ehow.com/list_6835331_consumer-laws-predatory-lending.html Harris, A. & Pettersson, E. (2014). HSBC sued for predatory lending by Cook County, Illinois. Retrieved from http://www.businessweek.com/news/2014-03-25/hsbc-sued-by-illinois cook-county-on-minority-lending-practices Hill, R.P. & Kozup, J.C. (2007). Consumer experiences with predatory lending practices. Journal of Consumer Affairs, 41(1), 29-46. Krulick, A. (2014). Predatory Lending. Retrieved from http://www.debt.org/credit/predatory lending/ Obara, P.E., (2001). Predatory lending. Banking Law Journal, 118(6), 541-553.