List of Predatory Lending Companies and Their Tactics

Predatory lending companies use various tactics to take advantage of unsuspecting borrowers. Some of these companies include Lending Club, which has been accused of charging excessive fees and interest rates.

One common tactic used by these companies is to target vulnerable individuals, such as those with poor credit or financial difficulties. This can lead to a cycle of debt that is difficult to escape.

Companies like Prosper and Upstart use data analytics to determine interest rates, often leading to higher rates for those who need them most. This can result in borrowers paying back significantly more than the original loan amount.

Predatory lenders often hide fees and charges within the fine print of loan agreements, making it difficult for borrowers to understand the true cost of their loan.

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Predatory lending can take many forms, but some types are more common than others. One type is rent-a-bank lending, where companies like CC Bank facilitate loans with exorbitant interest rates, up to 225% APR, through various lenders.

These lenders often target vulnerable individuals, such as those with limited means or poor credit. American First Finance, for example, offers installment loans through FinWise Bank at rates up to 155% APR for purchases like furniture and home improvements.

Predatory lending can also involve deceptive practices, like failing to disclose information about interest rates or repayment times. This can make it difficult for borrowers to make informed decisions about their loans.

Some predatory lenders may even forge important loan documents or charge inflated fees. Integra Credit, for instance, offers loans through TAB Bank with rates ranging from 149% to 199% APR.

Here are some common types of predatory lending practices to watch out for:

These practices can be particularly damaging to vulnerable individuals, such as older adults or those with disabilities. It's essential to be aware of these types of predatory lending to avoid falling victim to them.

Predatory lending practices can be sneaky, but there are some common red flags to watch out for. Be wary of companies that contact you at home without your request, or ask you to sign blank forms that will be filled in later.

Some predatory practices include high-pressure sales presentations with "one-time" offers, and planning loan closings at unusual locations like your home or a restaurant. These tactics are designed to catch you off guard and make you feel rushed into making a decision.

Here are some specific predatory behaviors to look out for:

These behaviors are often used to take advantage of vulnerable individuals, such as those with limited financial knowledge or those who are desperate for a loan.

Predatory lending practices can be sneaky, but there are certain elements that are typically found in them. High interest rates are a big red flag, and you can avoid them by shopping around to at least three lending institutions to compare offers.

Unusually high "points", fees, and other closing costs are also common in predatory loans. This can be hidden in the fine print, so make sure to read everything carefully and compare the loan interest rate to the disclosed Annual Percentage Rate (APR).

Requiring credit life insurance with loans is another sign of a predatory lender. This is because it's often unnecessary and can add to the overall cost of the loan.

Mandatory arbitration clauses favoring lenders can also be a sign of a predatory practice. This means that disputes between borrowers and lenders must be arbitrated by parties chosen by the lenders, which can be unfair to the borrower.

Loans for much higher amounts than required should be approached with caution. Lenders make their money based on the amount borrowed, so why borrow more than you need?

Refinancing lower-interest rate loans at higher rates can also be a sign of predatory lending. Be cautious of an attractive lower monthly payment by extending the repayment timeframe.

Prepayment penalties are another element of predatory loans that you should avoid. These are extra charges for paying off the loan before its maturity date, and they're often unfair to the borrower.

Here are some common elements of predatory loans to look out for:

Payday loans are a prime example of predatory practices, with interest rates that can be as high as 240% in some states.

Most payday loans have a loan term between seven and 14 days, which can quickly add up to exorbitant interest rates. These loans often have interest rates of $15-$25 for every $100 borrowed, resulting in an APR of 400%.

In Florida, the interest rate is capped at 10%, but this still translates to an annual interest rate of about 240%. This is a stark contrast to the average interest rate on a credit card, which is around 21%.

Borrowers often can't pay, so the loan is refinanced and the debt spirals. This can lead to a cycle of borrowing and repayment that's difficult to escape.

If you need money quickly, consider seeking out a personal loan, borrowing from a friend or family member, or even taking out a cash advance on your credit card. These options may have higher rates than you're used to, but they're still far lower than the rates for payday loans.

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Equity stripping is a form of predatory refinancing where lenders offer loans to homeowners who can't afford to pay, collecting closing costs and fees upfront. They don't care if you can't pay because they expect to recoup their money by foreclosing and selling your house.

A balloon mortgage is another trick where lenders offer low payments upfront, but big payments later that you can't afford to make. They'll often refinance again with another high-interest, high-fee loan.

Lenders may also engage in loan flipping, encouraging customers to borrow more than they should based on their home equity, rather than their income or ability to repay.

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A Balloon Mortgage is essentially a refinancing trick that can sink you financially. Loan flipping and equity stripping often involve balloon mortgages, where lenders convince homeowners to refinance with lower payments upfront, but big payments later.

The lender's goal is to get you to refinance again, with another high-interest, high-fee loan. This creates a cycle of debt that's hard to escape.

For more insights, see: How Do Balloon Payments Work

If you can't meet the balloon payments, the lender will refinance again, and again, and again, each time charging more fees and interest. It's like being on a spinning gerbil wheel of debt.

To avoid this trap, it's essential to work with a reputable lender and read the fine print before signing loan documents. Be wary of lenders who try to strong-arm you into refinancing with a balloon mortgage.

Inflated fees and charges are a common tactic used by predatory lenders to take advantage of unsuspecting homeowners. These fees can include appraisals, closing costs, and document preparation fees, which are often much higher than those charged by reputable lenders.

Fees are often hidden in fine print, making it difficult for borrowers to detect them until it's too late. This is a key characteristic of loan churning, where a lender offers a borrower a new loan with additional fees after the borrower has failed to make payments on the original loan.

For your interest: Commercial Mortgage Lenders

Inflated fees can also be found in loan packing, where lenders add unnecessary products like credit insurance to the cost of a loan. This can be devastating for borrowers who are already struggling to make payments.

The Mortgage Assistance Relief Services (MARS) rule requires mortgage assistance companies to be transparent about their fees, but this rule is often ignored by predatory lenders. As a result, borrowers may be charged exorbitant fees without any written offer for mortgage relief from their lender.

The best way to avoid inflated fees is to work with a reputable lender and always read the fine print before signing loan documents. Don't be afraid to ask questions and request an itemized list of what's included in the loan.

A different take: 3-6-3 Rule

Abnormal prepayment penalties can be a major headache for homeowners. Up to 80% of subprime mortgages have abnormally high prepayment penalties.

These penalties can be triggered when you refinance your home loan to take advantage of better terms. Many borrowers are surprised to find out that they'll be charged a fee for paying off the original loan early.

The fees can be steep, often amounting to 2% of the amount owed.

For another approach, see: Rocket Mortgage Cash Out Refinance Prepayment

Negative Amortization can occur when a monthly loan payment is too small to cover even the interest, which gets added to the unpaid balance. This can result in a borrower owing substantially more than the original amount borrowed.

A lender might encourage a borrower to refinance an existing loan into a larger one with a higher interest rate, which can lead to negative amortization. This is a common practice in the mortgage industry, as seen in Example 2: Inflated Fees and Charges.

Subprime loans have led to financial crises, including the 2008 economic collapse.

Subprime mortgage lending has found a new market in auto loans, where you could be paying as much as 22% for a used car loan.

Predatory lenders often target vulnerable individuals, such as those with limited means or bad credit.

Integra Credit offers $500 to $3,000 at 149% to 199% APR through TAB Bank in several states.

American First Finance offers installment loans through FinWise Bank at rates up to 155% APR for various purchases.

Consumer complaints describe the predatory American First Finance loans facilitated by FinWise Bank as unfair and deceptive.

Predatory lending can appear to be a helpful solution, but it often hides in appealing disguises that attract victims.

The best way to avoid predatory lending is through knowledge, and being aware of the signs can help you avoid getting trapped.

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Predatory lending companies often engage in deceptive and unfair practices to take advantage of vulnerable individuals. These practices can be difficult to spot, but being aware of the warning signs can help you avoid falling prey.

Some common predatory behaviors include being contacted at home without requesting a call, being asked to sign blank forms, and "high-pressure" sales presentations with "one-time" offers. These tactics are designed to create a sense of urgency and pressure you into making a decision.

Here are some specific behaviors to watch out for:

Fortunately, there are laws in place to protect consumers from predatory lending practices. The Equal Credit Opportunity Act (ECOA) makes it illegal for lenders to impose higher interest rates or fees based on certain characteristics, such as race or age. Additionally, 25 states have anti-predatory laws, and 35 states limit the maximum penalty for paying off a loan ahead of schedule.

Discover more: Predatory Lending Laws by State

Hidden payments can be a sneaky way for predatory lenders to take advantage of unsuspecting borrowers. They might hide these payments in the fine print, making it hard to spot them.

A hidden balloon payment is a type of hidden payment that can be particularly damaging. By law, lenders must disclose a balloon payment on the Closing Disclosure, but some lenders might try to hide it or make it seem like a normal payment.

Here are some red flags to watch out for:

If you're ever in doubt, remember that it's always better to read the fine print and question anything you don't understand. Don't be afraid to walk away from a loan if it seems suspicious or unfair.

Mandatory Arbitration is a sneaky tactic used by some lenders to take away your right to go to court. They'll add a clause to your loan contract that makes it illegal to take legal action for fraud or misrepresentation.

This means if you're a victim of predatory lending, you're left with no choice but to go to arbitration, which often puts you at a disadvantage.