To paraphrase a great philosopher who once said that “knowledge is the root of all that is good and ignorance is the root of all that is evil”. In this article, I would like to talk about an evil doer who preys on the lack of knowledge of its customers or potential victims – the Predatory Lender.

First, let me ask three questions to my reading audience: 1. How many of you know want a predatory lender is? 2. How many of you have ever been a victim of predatory lending practices? And, 3. How many of you would admit to being victimized by a predatory lender?

Let me give you the classical definition of when predatory lending occurs. Predatory lending occurs when an organization (Consumer finance company, money broker, mortgage broker, lender, etc.) uses unfair and deceptive lending practices, including misleading borrowers about the terms and conditions of their loans, the use of bait and switch sales tactics, and routinely failing to inform borrowers with some credit issues that they can qualify for credit at significantly better rates and fees. This is a very important point. How many of you have obtained a copy of your credit profile? If not, you should get one.

Predatory lending tactics are typically very subtle. The majority of the victims of predatory lending tactics are often minority group members (i.e. African American and Latinos). Typically, companies who practice these lending tactics often employ workers who look like the borrowers they are targeting for high-interest loans. The goal of the predatory lender is to get the victim to refinance his or her home or business through the company, so that the predator can take possession of the home or business if/when the borrower defaults, or cannot keep up with loan payments.

Other predatory lending practices use to trap borrowers are:

  1. Promising low interest rates, and then charging higher rates, even to borrowers with good credit.
  2. Misleading homeowners into refinancing out of perfectly good first mortgages.
  3. Financing large – and often hidden – fees into loans. Borrowers can be charged between 7 to 11 percent more than what they borrow. Because these fees are added into the loan, borrowers will pay interest on top of interest.
  4. The Predatory Lender traps borrowers with prepayment penalties which require the borrower to pay thousands of dollars in additional fees if they wish to escape into a better loan.
  5. The Predatory Lender attempts to escape legal consequences for their action by slipping a mandatory clause into the loan document which typically prevents the borrower from taking the lender to court.

The City of Philadelphia, in an attempt, to combat the some of the predatory outreach developed two programs at the creation of its Neighborhood Transformation Initiative to help residents with less than prefect credit improve their homes. These two Philadelphia home loan programs are the Mini PHIL and PHIL Plus [Link: http://www.phila.gov/ohcd/miniphil.htm]. PHIL stands for Philadelphia Home Improvement Loan. These programs are coordinated through several non-profits groups such as Philadelphia Council for Community Advancement. Another program specifically to help “seniors” in the community is “Circle of Life”, a West Philadelphia Financial Services Institution (WPFSI) sponsored program. This program offers the tools and expertise over a series of programs and individual counseling, to prepare seniors, and their families, to protect and transfer their most precious asset-their home.

There are a number of reasons that predatory lenders are successful:

  1. Typically, we’re afraid to talk about finances, so if we are victims, we’re less likely to talk about it, and
  2. As long as we don’t understand how much debt we can handle and how loans work, we will be victims.

Finally, the only way to stop these kinds of predatory practices, in our community, is through education. So please seek out organizations or agencies that can help education you on lending, finances and/or other matters that may help you better understand the process.

For additional information about loans, lending or small business planning, especially in Philadelphia, please call Calvin R. Tucker at 215-452-0100 or email me at calvin@wpfsi.com. Visit WPFSI’s website at www.wpfsi.com.

Calvin Tucker

Calvin Tucker is the loan officer for WPFSI. His diverse experience ranges from small & large businesses, commercial & mortgage banking, business development, credit analysis, management, origination, servicing [domestic/ international], and more.

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