The FDCPA helps protect consumers from many things, one being “predatory lending.” Predatory lending has no official definition, but if a lender practices deception, exploitation, violates consumer protection laws, or charges more than reasonable loan terms, they are considered to be participating in predatory lending. Borrowing areas including credit card agreements, mortgages, payday loans, and bank loans are all susceptible to predatory loans. It’s important to be aware of certain warning signs of predatory lending if you are planning on borrowing money. If you see any of these signs, be cautious:
1) No Transparency: If you are ever unclear of terms of your loan or it is filled with confusing legal jargon, be weary.
2) Secret Interest: Costs related to the loan called “fees” or “charges” are many times just interest pretending to be something else. This includes overdraft charges from your bank or service charges on your credit card.
3) Secret Additional Services: Occurs when a lender adds extra services into your loan’s term without notifying you that similar services may be available elsewhere for a lower cost.
4) Lies: Double check to make sure your loan documents contain all accurate (and consistent) information.
5) Redlining: This term means when lenders aim their loans at specific groups of people, which is an illegal practice. According to studies, subprime loans disproportionately affected women, racial minorities, people with less education, and senior citizens.
6) Excessive Interest: Lenders sometimes hide how much interest they are charging by only letting you know about the short-term interest rates, or not telling you at all. For example, payday loans can have a yearly interest rate of over an absurd 300%.
When borrowing money, it is incredibly important to be educated in what a reasonable loan are so that you are not tricked and taken advantage of by predatory lenders. The government has passed multiple laws to try and protect consumers from predatory lenders, including the Fair Debt Collection Practices Act (FDCPA), Fair Housing Act, HOEPA, TILA, and RESPA. Learn more about these laws and what you’re entitled to as a borrower to avoid getting scammed.