Predatory lending can be described as implementation of unfair loan terms on borrowers through aggressive sales tactics. Predatory lenders or loan sharks deceive customers by taking advantage of borrower’s fragile financial situation and their lack of understanding about the process of mortgage.
Predatory lending practices are currently the biggest menace affecting the U.S. mortgage finance system. Number of borrowers filing for bankruptcy and mortgage loan foreclosure is increasing at an alarming rate every year primarily due to predatory lending. However, every state in the U.S. has a separate mortgage foreclosure laws that deal with issues related to predatory mortgage loans and foreclosure suits. Most of these laws focus on the lending practice of the lender thereby providing protection to homeowners against any fraudulent lending practices. Some of these consumer protection laws include Truth in Lending Act (TILA), Home Ownership and Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA), Equal Credit Opportunity Act (ECOA) and Common Law Fraud.
All these laws provide settlements for victims of predatory lending in the form of compensatory damages, punitive damages up to $10,000, equitable relief, mandatory attorney fees and other costs.
In one such landmark settlement case, Capital City Mortgage Corp, a Washington-based mortgage lending firm, was ordered by the U.S. District Court to pay $750,000 to the Federal Trade Commission (FTC) towards compensatory damages. The lawsuit was filed by FTC against the company when it resorted to abusive lending practices. Capital City Mortgage Corp was found to have targeted minority homeowners with credit problems and convinced them into loans that they could not afford. These loans were provided at high-interest rates and carried heavy penalties resulting in increased rate of foreclosures. This act of the company was a violation of Fair Housing Act. The entire compensation was for distribution among the victims.