Abusive or Unfair Lending Practices - 2

* The most common complaint however, is with any loan which has associated fees which do not add to the APR number. These are compared to a hypothetical situation where the same money can be borrowed without fee from a line of credit. For example, a payday loan of 20 dollars may cost 2 dollars. If the borrower only had a credit card, a cash advance on the credit card might cost 4 dollars, and the payday loan would be the cheapest option (unless what I needed to purchase could be purchased by the credit card incurring no cash advance fee). However, if the borrower had a line of credit with no fees for cash advances, then if he borrowed that 20 dollars and repaid it within the same time frame as the payday loan, the interest would only cost 0.02 cents. This causes people to suggest that the 2 dollars charged on the 20 dollars is a 1000% interest rate. However it might be impossible for the borrower to obtain a no fee line of credit. This scenario occurs in many places:
o Payday loans
o Credit Card late fees
o Checking Account Overdraft Fees
o Car Dealer Finance, where the price of the car if financed is higher than if paid for in cash
o Tax Refund Anticipation Loans
o Certain mortgage and equity loan fees
o Rent to own stores

Anti-predatory lending organizations such as ACORN argue that predatory loans are usually made in poor and minority neighborhoods where better loans are not readily available, and that the loss of equity and foreclosure can devastate already fragile communities.

Organizations such as AARP and ACORN have worked to stop what they describe as predatory lending. ACORN in particular has targeted specific companies such as Household Finance and H&R Block, successfully forcing them to change their practices. These groups have also spearheaded legislation that would make forms of lending deemed to be predatory illegal.

On the other side of the issue are various subprime advocates such as NHEMA, who say that many practices commonly called "predatory," particularly the practice of risk based pricing, are not actually predatory.