Predatory Lending

At one time or another, almost every consumer has had the experience of having too many bills and not enough cash. While a timely loan can sometimes help an individual regain his or her financial footing -- further debt usually is not the answer. In fact, it can make matters worse.

Unfortunately, there are many unscrupulous and smooth-talking lenders in the market, who are all too willing to make loans that are not in the best interest of a consumer. This increasingly common practice is called "predatory lending" and it often targets low-income, minority or elderly consumers. In addition, people who are delinquent in property tax payments, those in need of money for medical expenses and those with credit problems are often targeted as well.

Predatory lending can have devastating consequences because such loans often include high interest rates, outrageous fees and unaffordable prepayment terms. Consumers must be careful when dealing with any lender.

One of the most common predatory lending tactics occurs when a lender makes a loan based upon the equity in the consumer's home, irrespective of whether the consumer has the ability to make payments. If the consumer cannot make payments, he or she can lose their home through a foreclosure proceeding.

Consumers victimized by this and other predatory lending practices may be entitled to relief under state and federal laws. My office investigates allegations of predatory lending and, if appropriate, will commence litigation to enforce compliance with the law. For example, my office recently obtained a consent decree with Delta Funding of Long Island, which requires the company to discontinue predatory lending practices and reduce broker fees.

The best strategy in dealing with predatory lending, however, is to exercise caution. These tips can help consumers avoid being victimized by predatory lending scams:

Beware of lenders or brokers who guarantee loan approval regardless of your credit history or rating;
Check to see that the lender and broker you are dealing with are licensed by the State Banking Department. You may contact the Banking Department at 800-522-3330 to determine whether a lender is licensed;
Be suspicious of anyone who pressures you to act before you are ready;
Shop around. Interest rates and fees vary widely. Do not assume you will not qualify for a loan from a traditional lender. Those loans are less expensive than "subprime" loans'
Ask about the total cost of the loan, including; fees, points and monthly payments. Remember that the interest rate is not the only important term of a loan;
If you are considering a loan with a variable interest rate, make sure you understand what conditions will affect a change in your rate and the amount by which your rate may fluctuate;
Watch out for "hidden" terms, such as pre-payment penalties and balloon payments;
Make sure you can really afford the monthly payments. As a general rule, responsible lenders will not accept mortgage payments of more than 29 percent of your total gross income;
Read the entire loan application carefully before signing. Make sure there are no blank spaces that could be filled in later by an unscrupulous lender;
Make sure that you have received, read and understood all required disclosure documents before you close. At closing, make sure the loan terms have not changed from what you were told before and that there are not additional fees you did not know about.

If you believe that you have been defrauded by an unscrupulous lender, contact the Attorney General's office at 800-771-7755