Rebecca Lobina

Rebecca Lobina, Six Sigma Green Belt, Regional Director of the SBTDC, at (816) 364-4105, lobina@nwmissouri.edu.

Beware of Predatory Lenders

According to the Financial Dictionary, predatory lending is the practice in which a loan is made to a borrower in the hope or expectation that the borrower will default.

Sounds crazy, but the way this works in favor of the lender is that the lender bases what you can borrow on your assets, equity, and collateral used to secure the loan, but not on your ability to actually repay the loan. So, once you default, the lender secures the assets and collateral, then sells them for a profit. The lender may also receive commissions, fees, or unreasonably high interest on each loan they close.

According to Debt.org only 25 states have anti-predatory lending laws, and the way it’s defined varies.

Individuals who are generally targeted by predatory lenders include those who urgently need cash, have a low credit score or poor history of borrowing, or have recently became unemployed. Predatory loans can include car, payday, tax refund anticipation, business loans and credit card loans and mortgages.

Cues that could indicate predatory lending practices:

• Receiving approval for a loan amount that you know you can’t afford (i.e. sub-prime mortgages)

• Extremely fast loan closing

• Not asking you for traditional paperwork that indicates your ability to pay (paystub, W-2, tax returns, credit report, employer information, personal financial statement, business financials, etc.)

• Packing, which means implying credit insurance is necessary to qualify

• Repeated enticements to refinance loans with additional fees and closing costs

• Switching loan terms on closing day

• Overly inflated interest rates

• An abnormally high pre-payment/payoff penalty

• A mandatory arbitration clause that forces arbitration instead of standard legal recourse for any fraud or misrepresentation

• A promise or guarantee that your loan will be approved regardless of creditworthiness

• Pressure to sign a loan contract before you’ve had ample time to read and consider it.

Predatory lending can result in poor credit scores, as well as unmanageable debt and a loss of assets or your home.

To see if there are any complaints against a lender you can use the Consumer Financial Protection Bureau’s (CFPB) database. Or, if you feel you’ve been a victim of predatory lending, you can file a complaint with the CFPB at https://www.consumerfinance.gov/complaint/

If you’d like assistance with acquiring a business loan, your local Small Business and Technology Development Center (SBTDC) can assist you with finding reputable financing organizations, as well as help you through each step of the financing process, all at no charge to you. The SBTDC is a resource partner of, and partially funded through, the United States Small Business Administration.

Contact Rebecca Lobina, Six Sigma Green Belt, Regional Director of the SBTDC, at (816) 364-4105, lobina@nwmissouri.edu.