Predatory lending

We work with the Massachusetts attorney general to educate consumers on a variety of topics. Learn about predatory lenders and how you can avoid them.

WhAT IS PREDATORY LENDING?

Predatory lending is any lending practice that misleads borrowers to take out enticing loans that are unethical and deceptive in nature.

WhO DO PREDATORY LENDERS TARGET?

Low-income families
Elderly homeowners
The unemployed
Individuals with little or no formal education
Individuals with bad credit or credit issues

HOW TO AVOID PREDATORY LENDERS

These are some common warning signs with predatory lenders:

They do not perform a credit check or ask about your existing debt
They rush you to complete your paperwork
They make it difficult for you to find the total cost of the loan - lack of transparency
They penalize you for paying off your loan early
The loan seems "too good to be true"
The payment structure is not consistent
They are not licensed

TIPS SHOPPING FOR A LOAN

Never sign a blank document and don't sign something if you don't understand it. Make sure to ask questions about:

the monthly payment
the annual percentage rate (APR)
the total cost of the loan, and
the length of the loan.

Never agree to a loan if your income isn't enough to make the monthly payment. The lowest monthly payment is also not always the best deal.

Be on the lookout for hidden fees, like insurance and broker fees, and fees for creating the loan.

WATCH OUT FOR BALLOON LOANS

This type of loan means you will owe one large payment when the loan is over. The monthly payments will seem small because you're only paying the interest. When the loan ends, you'll have to pay the entire principal.

If you agree to a loan, keep detailed records.

TRUTH IN LENDING ACT and THE RIGHT OF RESCISSION

In 1968, the Federal Truth in Lending Act (TILA) was enacted as part of the Consumer Credit Protection Act to require lenders to clearly disclose the terms and costs of a loan in writing. This allows consumers to knowledgeably and confidently shop and compare loans. Under TILA, borrowers have the right of rescission for certain loans which permits the borrower to cancel the loan within three days after signing.