Predatory lending

What is predatory lending?

Predatory Lending

Predatory lending is any illegal practice when lenders give money with unfair and unclear terms. Dishonest lenders expect that borrowers will fail to repay the loans. These are forcing deceptive services that borrower can’t afford to pay or don’t even need them. This has an impact on the borrower’s credit score and lifestyle. Short-term loans users are one of the most vulnerable targets to predatory lending.

What are predatory lending practices?

Unfair lenders use a variety of tactics to scam their victims and get their money. Their methods focus on elements detailed in the table below.

Predatory Lending and Its Common Practices
Abuse Type Explanation
Loan flipping A lender refinances a loan with a new one that has higher rates, extra fees, and pre-payment penalties.
Excessive fees Fees are much higher than other lenders charge. Some of them are even hidden in the loan contract.
Packing A borrower gets a loan that includes costs for the products he did not request or need. This can be credit insurance that is not really needed.
Balloon payments A lender offers to refinance a long-term loan with a new one with small payments in the beginning and higher payments later. Once the borrowers fail to make the payments, the lenders refinance the loan again, charging costly fees and high interest.
Prepayment penalties Lenders charge excessive fees for paying a loan earlier.
Bait-and-switch This happens when the agreed loan’s terms are modified to the lender’s benefit when it comes to signing the papers.
Asset-Based Lending Giving money based on the borrower’s assets rather than their ability to pay back the loan on time.
Endless loan renewals Forcing the clients to enter debt cycle and renew loans in order to earn extra income on fees.

How to spot out predatory lenders?

Predatory Lending

Keep in mind our warning list when looking for loans. This may lower your chances of becoming a victim of dishonest lenders.

  • The interest rate is too low to be true;
  • Lenders force you to act quickly, right now;
  • Lenders allow endless loan renewals;
  • You are forced to take out a risky or costly loan;
  • They ask or suggest you to give fake details in your application;
  • The fees are much higher comparing to other lenders;
  • The terms suddenly change.

Protection from predatory lending

There are federal and state laws aimed at banning abusive lending. The Truth in Lending Act requires lenders to disclose all the details of a loan offer, before signing a contract. Such details include loan term, total charges, annual percentage rate (APR) and fees.

What Can I Recover from Predatory Lenders?

Remedies that are available for borrowers may cover:

  • Cancellation of the loan contract;
  • Losses caused by predatory lending;
  • Statutory damages;
  • Attorney’s fees and costs.
References and Sources

1. What is Predatory Lending? Retrieved from

2. Predatory Lending Laws. Retrieved from