Know Your Rights
Predatory Lending Practices
There are a number of different forms that predatory lending takes. In each instance, however, a financial institution takes unfair advantage of a consumer’s financial needs by charging usurious interest rates and other unconscionable fees and charges.
Predatory Mortgage Lending: drains wealth from families, destroys the benefits of homeownership, and often leads to foreclosure. It is estimated that predatory mortgage lending costs Americans more than $9.1 billion each year.
Predatory mortgage lending involves a wide array of abusive practices. Here are brief descriptions of some of the most common.
Excessive fees: Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easy to disguise or downplay. On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.
Abusive prepayment penalties: Borrowers with higher-interest sub prime loans have a strong incentive to refinance as soon as their credit improves. However, up to 80% of all sub prime mortgages carry a prepayment penalty -- a fee for paying off a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months interest. In the prime market, only about 2% of home loans carry prepayment penalties of any length.
Kickbacks to brokers (yield spread premiums): When brokers deliver a loan with an inflated interest rate (i.e., higher than the rate acceptable to the lender), the lender often pays a "yield spread premium" -- a kickback for making the loan more costly to the borrower.
Loan flipping: A lender "flips" a borrower by refinancing a loan to generate fee income without providing any net tangible benefit to the borrower. Flipping can quickly drain borrower equity and increase monthly payments -- sometimes on homes that had previously been owned free of debt.
Unnecessary products: Sometimes borrowers may pay more than necessary because lenders sell and finance unnecessary insurance or other products along with the loan.
Mandatory arbitration: Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing.
Steering & Targeting: Predatory lenders may steer borrowers into sub prime mortgages, even when the borrowers could qualify for a mainstream loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with sub prime mortgages could have qualified for loans with better terms. According to a government study, over half (51%) of refinance mortgages in predominantly African-American neighborhoods are sub prime loans, compared to only 9% of refinances in predominantly white neighborhoods.
Short Term Predatory Lending
Payday Lending (sometimes called cash advance): is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. To qualify, borrowers need only personal identification, a checking account, and an income from a job or government benefits, like Social Security or disability payments.
Overdraft Loans (also called "bounce protection" plans): are offered by banks to low-income consumers. In exchange for covering account overdrafts up to a set dollar limit, banks charge bounced check fees, ranging from about $20 to $35 for each transaction. Some banks also charge a per day fee of $2 to $5 until the consumer's account has a positive balance. In addition to writing checks, customers can borrow against their bounce protection limit using their debit cards and by making ATM withdrawals.
Car Title Loans: Like payday loans, car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. Car title loans put at high risk an asset that is essential to the well-being of working families -- their vehicle.
Tax Refund Anticipation Loans (RALs): are short-term cash advances against a customer's anticipated income tax refund. But the loans are offered at high interest rates, ranging from about 40% to over 700% APR. Also, they speed up the refund process by as little as one week, compared to what consumers can expect by filing online and having their refunds deposited directly into their banking accounts.
Identity Theft
More than a decade ago, identity theft hit the radar screen of every bank, finance company, utility, cell phone provider and legislator. Since then, the number of reported victims has risen every year. In spite of much talk, Congress and the President have added no new enforceable rights for consumers to prevent corporations from further victimizing people whose identity was stolen. In fact, these politicians have limited your rights by taking away your state's ability to pass laws that protect you from false credit reporting.
So consumers have been left to navigate a potential mine field of alleged remedies which often require that the consumer take steps which are counter-intuitive (and frankly, make no sense) before they can bring a lawsuit. And even then, the remedies are not easily obtained, and few attorneys know how to get them.
Signs of Identity Theft:
If you have experienced any of the below, it is possible that you have been a victim of identity theft:
- Unknown credit accounts have popped up on your credit report.
- You have been receiving mail or pre-approved credit offers with someone else's name at your home or office.
- Companies that you have not done business with or applied to for credit have been looking at your credit report.
- Debt collectors have started sending you collection notices for accounts you do not have.
- Your credit report lists an alias name or address that you have never used.
- You have received bills, statements, or other account information in the mail relating to accounts you didn't open.
However, in most instances you cannot know for certain if you have been a victim of identity theft until you have received all the documents relating to the information that is harming you. Any of the above could have occurred by mistake.
The credit grantors (banks, financing companies, etc.) regularly make mistakes about the identity of their own customers, including their social security numbers, names, and other identification information. And credit bureaus regularly make credit report errors, confusing consumers with each other, mixing and merging credit information inappropriately, and attributing credit information to people who have no relation to the accounts in question.
Since consumers rarely have conclusive proof of identity theft, they should never execute any "identity theft affidavit" or "fraud affidavit" until they have seen the actual application which is believed to be forged. Likewise, consumers should never execute those affidavits without consulting an attorney first.
How Can Identity Theft Hurt Me?
Identity theft can cause a variety of problems with credit reports and debt collectors. The people taking your identity can open credit cards in your name and run up huge charges, ruining your credit rating and making future purchases impossible. Insurance companies use lower credit scores to justify higher rates. You may even be denied employment or fired from your job because of false information in your credit history. And you could suffer serious harassment by debt collectors. Even after you discover the theft, corporate predators may have you take actions that are counter-productive and will hurt your ability to recover your identity and the compensation you deserve for going through the whole ordeal.
What to Do
If you are or suspect that you are a victim of identity theft, and want to put your problem to an end, learn your rights, prepare your case, and Fight back!
If you are a victim of identity theft, you are entitled to several benefits under the revised Fair Credit Reporting Act (FCRA). That statute not only entitles you to free copies of your credit file (your credit reports) -- it also enables you to place a fraud block in that file. By placing a fraud block in your credit file, you will be notifying all potential creditors that someone has been using your identity and warning them not to extend further credit without absolute proof that they are actually dealing with you.
The Dangers of Disputing an Item
Second, if you dispute an item on your credit report directly to the creditor and claim identity theft, you open yourself up to an open-ended inquiry from that creditor. Under the revisions to the Fair Credit Reporting Act (FCRA), consumers must provide all information requested by the creditor if there is a credit reporting dispute. This means that by disputing an identity theft item directly to a creditor, you may be required to provide information that is not already in the possession of that creditor, information which can be used to further harass you or destroy your credit.
Starting a Lawsuit
You may end up having to launch a lawsuit to get what you deserve. In order to start a case you will need all the documents that relate to dispute and all the documents that relate to your damages. You also need to gather any copies of your credit report that are available, including copies that you have received or that anyone else has received (including a mortgage broker, car dealer, or insurance agent). If you have received any letters denying you credit you should gather those letters, they will help establish your damages.
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