Predatory Lending
CreditGlossary term
Definition
Unfair or deceptive lending practices that impose abusive loan terms on borrowers, often targeting people with poor credit or limited financial literacy. Common signs include extremely high interest rates, hidden fees, loan flipping, and balloon payments that the borrower cannot reasonably afford. Federal and state laws, including the Truth in Lending Act, aim to protect consumers from predatory lending.
Related terms
- UsuryThe practice of charging illegally or unethically high interest rates on a loan, which exceeds the limits set by state or federal law. Usury laws vary by state, with some states setting strict caps on interest rates while others have more lenient regulations. These laws exist to protect borrowers from exploitative lending practices that can trap them in cycles of debt.
- Equal Credit Opportunity Act (ECOA)A federal law that prohibits lenders from discriminating against credit applicants based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Under the ECOA, lenders must evaluate applications based on creditworthiness factors like income, debts, and credit history. If your application is denied, the lender is required to provide a specific reason for the denial.
- Credit CounselingA service provided by certified professionals who help you manage debt, create a budget, and develop a plan to improve your financial situation. Nonprofit credit counseling agencies can negotiate with creditors on your behalf to lower interest rates or set up a debt management plan. Reputable agencies are accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America.
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