With growing scams in the investment industry, fraudsters are exploiting every possible way to scam people and trying and testing every method to dupe them. Con artists have deeply rooted their scams in the investment industry, and thus, you can find various types of scams and frauds in the market.
As a result, predatory lending scams are introduced in the investment world, and they are designed in a manner where the scheme looks more legit and people tend to fall for them easily. As the lending service looks more sophisticated and has policies, people believe it is legit.
But it is nothing more than fraud, as they use deceptive tricks to fool the borrower and impose higher interest rates on their loans. Let’s thoroughly understand the concept of predatory lending, how it works, and how you can avoid it easily.
What is predatory lending?
Predatory lending is nothing but a loan process used by many financial institutions, banks, and money lenders where they provide the loan but at very high interest rates or fees. Fraudsters entice and trap borrowers in these schemes, as for some individuals, the amount is unpayable.
Their predatory loan is advertised heavily on social media and marketed with false information. Fraudsters also use deceptive techniques to lure people into their scams. The false advertisement lures more borrowers into the scam, and most of the borrowers are those who are not eligible for the loans and have low credit scores.
Predatory loans are often provided by loan sharks and target families with low incomes, and as they are unlicensed money lenders, they practice every illegal way to threaten the individual and get back the borrowed funds with all interest amounts. Their intention is clear to put the individuals in more debt and make them pay more for whatever amount they borrowed.
People, mostly those who have less access to education and are not able to understand the policies clearly, are targeted. In addition, people who are discriminated against for their race, age, or disability are also targeted.
What are signs of predatory lending?
In predatory lending scams, the con artists use various tactics, but many of these methods are still practiced by financial institutions. Following are the signs of predatory lending:
Adding extra fees to the final loan amount is a common practice used by fraudsters. As is often observed, there are many cases where the borrower had to pay interest while initially the interest rate mentioned was not included.
There are times when individuals have to pay extra installments, and in the installment sum, most of what they are paying is interest on their loan.
Asset-based loans mean the borrower has to keep his or her house, property, or something valuable like gold to get the loan. They have to pay the installments at regular intervals, or they will put their properties or assets at risk.
People with low cash flow and good equity have a higher chance of being targets. The lenders lure them to get loans, which they can easily repay in some installments, but there are times when people lose their property in such loan schemes.
In loan flipping, the money lender makes the borrower refinance, and this process repeats itself again and again. This leads to more debt, and the pressure on the borrower increases gradually until they are unable to pay installments.
A balloon payment is when the payee opts to pay the whole sum at the end of the loan period. The interest is only paid during the installments, and the sum to be paid looks small as it is presented as a monthly payment. So the payee tends to choose the balloon payment option, but later they have to refinance their payment option.
How to get out of a predatory loan?
To protect the people from fraudsters, governments have introduced many laws that can help them fight against the lender in court and get proper justice. Government bodies like the Consumer Financial Protection Bureau, or CFPB, and the U.S. The Department of Housing and Urban Development, or HUD, is trying to get stricter rules and put more pressure on predatory lenders to fight predatory lending.
In some states, payday loans are banned, whereas in others, the government has put a certain limit on the amount the lender can charge. Other than that, the U.S. government has introduced a number of acts to help consumers and make it harder for lenders to take unfair advantages. The list of acts is as follows:
- The Military Lending Act
- The Equal Credit Opportunity Act
- The Truth in Lending Act
- The Home Ownership and Equity Protection Act
- The Credit Card Act
If you fall victim to the scam, escaping the loan can be trickier, but you can at least do your best to punish the fraudster. You can follow the steps below to get out of a predatory loan.
- Report the lender.
- Use your right of rescission.
- Sue the lender.
- Refinance the loan.
How to avoid predatory lending scams?
Predatory lending scams can be avoided easily if you work smartly from your end. You just have to be more vigilant and aware of your surroundings. The fraudster will try to entice you into the scam, but you have to think practical in such a situation and read the policies carefully. Following are the steps to avoid predatory lending scams:
Read the policy.
- Read the contract or the policies of the firm properly; without doing proper research, don’t go for the deal. You can also get your agreement reviewed by the attorney or get better advice from them.
- There may be some instances where they will make you sign blank papers. Never sign on blank papers; the documents can be manipulated, and you may end up losing your assets or getting more debts.
Before signing a loan, look for other options too.
- Most of the time, people who don’t get the loan easily are the ones who experience getting trapped in the debt cycle of the loan sharks. As they are discriminated against for the schemes and questioned about their eligibility.
- Still, you can look for more offers and get a better loan offer.
- Read about the loans and learn and gain more information about the market and at what rate the loans are provided. The more knowledge you have, the more it will help you spot fraudsters and avoid them tactically.
- You can easily find some basic tips on the federal deposit insurance corporation’s website, which is a government-based website. They will help you understand the loan process, and you can even cross-question the lender and get more details about the loan. If the lender is committing fraud, they will definitely try to get off topic or cut the conversation short.
- If possible, skip the loan process from the money lenders or the final institution and get the required amount from family members, friends, or a group like a religious group or some program.
- They can easily help you without putting you under pressure to pay a loan against your assets.
Winding up the article, predatory loans are deceptive practices used by many financial institutions and financial sharks. The best method you can use to avoid these scams is to read policies properly, never sign a contract unless you are 100% sure about it, and if you spot anything suspicious, stay away from it and, if possible, report it. You can contact Financial Options Recovery to get your funds back.
Mostly black and Latinx communities are the primary targets of these scams.
Predatory lending is nothing more than chasing a vulnerable borrower and keeping them in the debt cycle. The best solution to this fraudulent activity is to avoid signing up for such scams.
Yes, predatory lending is illegal, as this scheme entices people with weak cash flow to apply for loans and traps them in the debt cycle.