What is Predatory Lending?

Predatory lending is when a lender issues a loan to a borrower that they know will probably not be able to repay that loan under the stated terms.

There are Federal laws to protect the consumer against this, such as:

• the Truth in Lending Act (?TILA?), and
• the Real Estate Settlement Procedures Act (?RESPA?)

In addition, there are also many specific state laws that require lenders to disclose certain additional parameters of a loan to the borrower. If any of these are not disclosed properly, or if it can be demonstrated that a lender employed predatory practices, severe monetary and disciplinary penalties can be levied against them.

An example of predatory lending is the familiar "bait and switch." This is when you are promised a certain rate, term and fees...only to find out once it comes time to sign your loan paperwork that the terms, rates and fees are different than originally disclosed. It is also important to note that there are laws that prohibit lenders from providing different loan terms to people based on their race, sex and ethnicity.