The type of lending when a lender uses dishonest (and sometimes illegal) practices to take advantage of borrowers. Predatory lenders have shown to target less educated, elderly, and/or racial minorities, however anyone could be made into a victim if they are not aware of their situation.

• Predatory lenders deceptively convince borrowers to agree to unfair or abusive loan terms, and in this way violate the borrower's rights into making it difficult to defend themselves.

• Predatory Lending most often occurs on collateral-backed loans, whether that collateral be a car or a house. When the borrower defaults on their loan due to the lender's unfair/abusive terms, the lender will then repossess or foreclose on the property and thus profit by selling that property.

• There are laws in the United States against many of the specific practices identified as predatory lending.

Some Examples:

an interest rate that exceeds a rate at higher than 12%

states that take a 1 yr treasury index and add a number to it, so that if a 1 yr treasury note gets 2.5%, the loan can be considered illegal if the interest rate is higher than 8% (in addition to that index), or 10.5%

Bankapedia’s Take

During the Mortgage Market Collapse of 2007, the term "Predatory Lending" was bandied about constantly by the media. While the term has no absolute specific definition, it is most simply defined by abusive and misleading lending practices.

• Have you ever come across a lender that is trying to convince you to refinance when it just does not seem right?
• Have you ever had a lender convince you that he or she is the only lender that can get your loan done?
• Have you had a lender try and convince you that it makes sense to spend $10K to get $20K in cash out?
• Have you had a lender try and convince you that his time is worth 5 Origination Points and this is a standard practice?

The above situations just point to a few types of predatory lending. The best defense is talking to more than one lender, educating yourself on the process, and not being afraid to walk away from the closing table if the terms are not correct. It's easier for lenders to rectify closing costs than most borrowers assume.

You should also make sure to check with your state's laws about predatory lending, since much has yet to be accomplished regarding legislature.  Although there has been some effort made  to come up with a national standard, this doesn't mean that the problem has been completely solved.  One such example is the Home Owners Equity Protection Act (HOEPA), which limits the interest rates on certain mortgages to an index + a margin.  While this Act discourages a higher cost mortgage, it just requires that there are more items to be disclosed in order for the loan to be closed.