Predatory lending refers to unconscionable lending practices that take advantage of vulnerable borrowers, such as the elderly or unsophisticated. The term also refers to the practice of convincing borrowers to agree to unfair and abusive loan terms. Such loans could take place either through outright deception or through aggressive sales tactics, taking advantage of borrowers' lack of understanding of extremely complicated transactions.
One lending tactic that is generally considered to be "predatory" is making a secured loan, such as home or car loans, with the expectation that the borrower will not repay the loan (i.e. default), and therefore the lender acquires title to the home or car in a foreclosure sale.
The typical case is where the monthly payment exceeds 50% or even 75% the borrower's after-tax income, or the borrowers income is irregular. While the borrower may be unaware their default is statistically probable, the lender should be aware of this and not make such loans.
No comments:
Post a Comment