What should you do if you’re a victim of predatory lending? That’s an important question to ask. In the moment, when you’ve just discovered that someone has taken advantage of you, it can be difficult to keep calm and take the right steps to report the fraud and protect yourself.
At Addition Financial, we believe it’s our job to keep our members informed about predatory lending practices and what to do if you find yourself caught up in a subprime mortgage scam or you’re harmed by unfair lending practices.
With that in mind, we’ve created this seven step guide to help you report predatory lending and take steps to protect yourself going forward. Here’s what you need to know.
#1: Identify Predatory Lending
The first step is to identify predatory lending, so you can report it. Some examples of predatory lending include the following.
- Exorbitant interest rates. To compare rates, you should always multiply the rate out to an annual rate. For example, a mortgage might have an interest rate of 5%, which compounds daily. A predatory loan, like a payday loan for instance, might have an interest rate of 10%, but that 10% is due in 14 days and works out to more than 240% annually. In other words, payday lenders will impose a higher interest rate on borrowers to increase their debt. High interest rates are a hallmark of payday lending and should be avoided at all costs.
- Loan packing. A predatory lender will add unwanted services and fees into a contract without disclosing them. An example would be an auto dealer adding insurance, roadside assistance, or an undercoat to your loan contract without telling you. Similar to payday loans, car title loans do not require a credit score check, which is another red flag of predatory lending.
- Bait and switch. An unscrupulous lender will switch the loan term or add something unexpected before the closing. An example would be a mortgage broker who backdated a Closing Disclosure to make it look like they disclosed a balloon payment to you when they failed to do so.
Whatever the predatory lending practice is, identifying it is an important first step. You’ll need this information to report your problem to the authorities.
#2: Contact the Appropriate State or Federal Agency
At both the federal and state levels, there are agencies whose job it is to collect reports about predatory lending and take action against predatory lenders.
At the federal level, you should report predatory lending to the Federal Trade Commission (FTC) on their website or by making a phone call. On the website, click the option to Report Fraud and follow the instructions. You can also call them toll-free at 1-877-FTC-HELP (382-4357) or write to the Federal Trade Commission at this address:
Federal Trade Commission
CRC-240
Washington, D.C. 20580
In Florida, complaints should be directed to the attorney general’s office. You can find the website here. Click the Contact Us tab and choose “File a Complaint,” then follow the written instructions to report predatory lending.
It’s important to take this step as soon as possible because it offers you the maximum protection available by putting your complaint on record.
#3: Check to See if You Have the Right of Rescission
There are laws in place to allow borrowers to rescind their agreement to a loan. This is known as the right of rescission. Carter Seuthe is the CEO of Credit Summit. When we asked him about predatory lending he said this:
“See if the right of rescission applies in your situation. Whether it does or not, contact a lawyer to discuss your options. You may be able to sue the lender.”
You do not have the right to rescind a mortgage loan after you have signed the loan document. However, you do have three business days to rescind a refinancing loan. The clock starts ticking after you:
- Sign the promissory note
- Receive the Closing Disclosure
- Receive two written copies of a notice explaining your right to rescind
For the purposes of rescission, Saturdays count as business days but Sundays and federal holidays do not. The first day after you receive the final item from the above list is considered day one. You must request rescission in writing using a form provided by the lender or a letter and it must be mailed before midnight on the third day. Make sure to get proof that you mailed it, meaning you’ll need to send it certified mail or using a method that provides a tracking number.
#4: Document Your Claim
After you have reported the predatory lending, the next step is to document your claim. That means gathering any documentation you have, such as the closing disclosure, loan documents, copies of emails and texts, and any other paperwork you might have accumulated during the lending process. If possible, you should also document any phone calls and conversations, even if you can only paraphrase the other party’s words. At the very least, make a list of the dates and times of phone calls to include with your paperwork.
We would also suggest finding any ads or web pages that you found to be misleading or deceptive. For example, if you remember seeing an ad on a mortgage lending website that related to the type of predatory lending you experienced, find it, copy the URL into a document, and take a screenshot.
The more documentation you can gather, the easier it will be to prove your case and recoup any money you lost as a result of predatory lending practices.
#5: Contact a Lawyer
The thought of hiring a lawyer may not occur to people after they file a complaint with the FTC or the state attorney general’s office but it may be necessary to protect yourself and work to get out of the predatory lending situation.
According to Dave Reisher, a Consumer Attorney and the CEO of LegalAdvice.com:
“A person that believes that they are the victim of predatory lending should speak with a consumer lawyer. Consumer lawyers are more familiar with the rules that are in place to prevent a borrower from being taken advantage of by unscrupulous brokers and lenders.”
This is advice that we feel is important because a lot of people turn to a lawyer they know – a family member or friend – instead of a lawyer who has the specialized knowledge to help them with predatory lending. This isn’t the time to hire your estate lawyer or your sister’s friend. You need someone who can read and interpret the loan contract and understand state usury laws and statutes.
You’ll need to provide your lawyer with documentation of your loan and any predatory lending practices. Keep the originals for yourself and make copies for your attorney.
#6: Consider a Lawsuit
If the right of rescission does not apply to you, then you may need to consider filing a lawsuit to get out of the loan. Your consumer attorney will be able to help you decide whether a lawsuit is necessary and how to proceed.
Depending on the amount of your loan, you may be able to pursue it in small claims court. The limits for small claims courts vary from state to state. In Florida, cases involving less than $8,000 may be settled in small claims court.
In some cases, the threat of a lawsuit is sufficient to get a lender to release you from your loan agreement. You may need to refinance, in which case your goal should be to get the lender to waive any early repayment fees or penalties. Make sure to get any concessions in writing, so you have proof of your agreement.
In the event you need to go to court, the documentation you collected will help you to prove your case. Your lawyer can advise you on what to pursue; for example, you might sue to recoup any exorbitant fees you paid as well as for reimbursement of your legal fees.
#7: Protect Yourself Going Forward
The final thing to do is to take steps to ensure that you don’t get caught up in any predatory lending practices going forward. That means educating yourself about common practices and learning to identify the warning signs. It also means making a commitment to handle financial transactions in a new way. Here are some pointers to help you find a reputable lender:
- Research potential lenders online before approaching them. You should always check to see if a lender is registered in your state and read online reviews. We suggest checking for complaints with the FTC and Better Business Bureau as well.
- Be wary of any lender who pressures you to close a loan or sign a document without reading it.
- Always request a copy of the loan agreement before closing and read through it in its entirety. Highlight anything you don’t understand and don’t sign until you’re satisfied with the answers.
- Always bring your sample agreement to the closing and compare it with the documents you are signing as needed. Read everything through on the official documents and don’t sign unless the agreements match and you’re satisfied that you understand your obligations.
- Consider hiring a lawyer to read through the loan agreement and attend the closing with you.
- Keep copies of everything, including sample loan agreements and your final documents as well as all email communication with your lender.
These measures will minimize your risk and help you document any issues if you need to report predatory lending.
Predatory lenders take advantage of people’s trust and saddle them with high rates, hidden fees and unwanted products. If you feel you have been a victim of predatory lending, you should use the steps we’ve outlined here to report it immediately.
Do you want to be a member and not a customer? Credit union membership has its privileges because as a member, you are a part-owner of the credit union and you’ll have access to credit counseling, advantageous loan terms and competitive rates. Click here to become an Addition Financial member today!
