Legal Definitions - predatory lending

Definition: Predatory lending is when a lender takes advantage of a borrower by imposing unfair or abusive lending terms. This often happens to people who are elderly or have low incomes. Examples of predatory lending include:

• Not telling the borrower important information or lying to them
• Charging very high interest rates or fees
• Using risk-based pricing to make the loan harder to pay back

These actions, either alone or together, make it more likely that the borrower will not be able to pay back the loan and will default. Predatory lending is illegal and there are laws to protect borrowers from it.

Examples:

Example 1: A lender tells an elderly person that they need to take out a loan to pay for home repairs. The lender doesn't tell the person that they could get a grant to pay for the repairs instead. The lender charges a very high interest rate and fees. This is an example of predatory lending because the lender didn't give the borrower all the information they needed to make a good decision.

Example 2: A lender offers a loan to a person with a low income. The lender tells the person that they can only get the loan if they agree to pay it back in a very short amount of time. The lender knows that the person won't be able to pay back the loan in that amount of time. This is an example of predatory lending because the lender is setting the borrower up to fail.

These examples illustrate how predatory lenders take advantage of vulnerable people by not giving them all the information they need to make good decisions and setting them up to fail by imposing unfair terms.