Predatory Business Practices and Lending
The term predatory business practices, like the term predatory lending, is relatively new. It was born out of the abuses that take place when consumers get taken advantage of by businesses because they lack knowledge about a product or a process. They are often given inadequate information, the wrong information, or just plain lied to.
Generally speaking there are honest and ethical people in business and then there are those that make it their business to take advantage of everyone they can. Predators do this because they can get away with it with little, or most likely, no consequences. They are premeditative in their approach, and they are good at what they do. The law and the lawyers offer no affordable protection for the consumer.
What is Predatory Lending?
In communities across America, people are losing their homes and their investments because of predatory lenders, appraisers, mortgage brokers and home improvement contractors who:
- Sell properties for much more than they are worth using false appraisals.
- Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
- Knowingly lend more money than a borrower can afford to repay.
- Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
- Charge fees for unnecessary or nonexistent products and services.
- Pressure borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
- Target vulnerable borrowers to cash-out refinance offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
- "Strip" homeowners' equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower.
- Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.
What Tactics Do Predators Use?
- A lender or investor tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses.
- The house you are buying costs a lot more than other homes in the neighborhood, but isn't any bigger or better.
- You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true.
- You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not.
- The cost or loan terms at closing are not what you agreed to.
- You are told that refinancing can solve your credit or money problems.
- You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.
Predatory lending affects the real estate community in many ways. Unscrupulous lenders make billions of dollars because the consumers do not realize they are being taken advantage of. Lenders use tactics such as bait and switch, giving misinformation, changing the deal, and inflating rates just to name a few. Their customers could even be aware that they are being cheated, but the reality of the situation is that they are seldom in a position to do anything about it. And it’s the consumers who end up affording lenders unfair profits by paying excessive charges out of their pocket at closing or in their mortgage payment every month.
When this happens, they have a bad taste in their mouth for every person in the transaction – even the good guys. Most lenders are not predatory, and those that are give the rest a bad name.
Unfortunately, predatory business practices, and especially predatory lending, are here to stay. Laws may be passed, but in reality, little can be accomplished. A prominent politician has stated that he would be happy to introduce legislation to prevent predatory lending practices if only someone could define it. For every law that is passed there are plenty of lawyers to argue for the criminals, and in the middle is your money going to the endless process.
The way to deal with predatory practices is to work with honest and ethical people who can spot the practices and protect the consumer from them. This is the goal of GiantLion.