Brief Primer on Predatory Lending — What Every Borrower Should Know

There are a number of key concepts and principals every borrower should know concerning the issue of predatory lending, including what it is, and what relief is available to those adversely affected by such illicit practice.

What is the formal definition of a subprime loan?

Subprime loans are granted to a borrower at a higher rate than current prime interest rate because of the borrower’s conventional credit history. Generally, subprime loans are 3 points higher than conventional loans and have much higher costs and fees. As set forth in an article published in the Banking Law Journal, the benefits of such loans comes at a great cost “because the borrowers of subprime loans are being charged excessive interest charges that will eventually place them in default.” In 2006, the Wall Street Journal found that “61% of subprime loan holders actually had credit scores high enough to qualify for loans at prime rates.”

Predatory Lending: A Brief Case Study

Wells Fargo, is one of America’s largest subprime lenders, making real estate and consumer finance loans to borrowers with less than perfect credit. Wells Fargo, a relatively newcomer to the sub-prime lending industry, has already run into significant controversies in California, Maryland, Illinois and New York. As expressed by Responsible Lending, a non-profit organization, despite Wells Fargo’s success there are several “trouble spots in its subprime mortgage lending” including the victimization of “low-weath consumers.” A review of Wells Fargo’s lending practices, dating back to 2004, shows “a host of practices … including excessive fee and high interest rates, deceptive marketing and consumer steering, loan ‘flipping’ and sham ‘open-end’ loans and credit cards.

What Can Be Done?

There are a number of remedies available to individuals adversely affected by predatory lending, including but not limited to filing a formal complaint and legal claim against the lending institution. According to the American Bar Association’s website, individuals may assert claims for predatory lending by way of “active consumer law bars.” Other resources include the National Consumer Law Center (NCLC) and the National Association of Consumer Advocates (NACA)

If you or someone you know has suffered as a result of predatory lending practices, please contact our law-firm for a free consultation.