By John-Michael Lawrence
Payday loans. The most common form of predatory lending and loan slavery. Terms of payment you can’t keep and unfair interest rates keep you enslaved to that loan. But not just payday loans.
A client from the 1980’s contacted me a few years ago. He made a $5,000 loan after Katrina in 2006. By 2022 he had paid $125,000 on that loan, illegally, because of both fraudulent and illegal practices.
Predatory lending is any lending practice that imposes unfair and abusive loan terms like unfair, discriminatory, or illegally high-interest rates, high fees, and terms that strip the borrower of equity.
Predatory lending is designed to unfairly and illegally benefit the lender by ignoring and hindering the victim’s ability to repay the loan. Keeping them paying exorbitant amounts on a debt long after it was paid.
Predatory lenders target people struggling to meet monthly expenses, who have recently lost their jobs, and who are denied access to a wider range of credit options for illegal reasons, such as discrimination based on a lack of education or older age.
Black and Latinx borrowers are more likely to receive subprime loans at higher costs. Black women with the highest incomes are five times more likely than White men of similar incomes to receive subprime loans.
They target People whose inadequate income leads to regular and urgent needs for cash to make ends meet (payday loans), people with low credit scores, those with less access to education, those subject to discriminatory lending practices because of their race, ethnicity, age, or disability, those in communities where few other credit options exist, which makes it more difficult for borrowers to shop around.
How to defend against the Predator
- Educate yourself. Becoming more financially literate helps borrowers spot red flags and avoid questionable lenders.
- Shop around for your loan before you sign on the dotted line. If you’ve experienced lending discrimination in the past, you’ll understandably just want to get the process over with as soon as possible. Don’t let the lenders win this time. Comparing offers will give you an advantage.
- Consider alternatives. Before taking on a costly payday loan, consider turning to family and friends, your local religious congregation, or public assistance programs, which are unlikely to cause the same financial harm.
- Telling signs of a predatory lender. Aggressive solicitations, excessive borrowing costs, high prepayment penalties, big balloon payments, and being encouraged to consistently flip loans.
- Education and research are crucial. Make sure you understand any loan documents you are signing and calculate how much you’ll owe.
The Truth in Lending Act (TILA) protects consumers in their dealings with lenders and creditors. The regulations found in the TILA apply to most kinds of consumer credit, from mortgages to credit cards. Lenders are required to clearly disclose information and certain details about their financial products and services to consumers by law.
