Predatory Lending Definition


Predatory lending can be defined as a single or combination of lending practices that involve fraud, deception and discrimination, based on origin, or unfavorable terms to borrowers. Some of these practices can be legal but deliberately harmful to borrowers.

Even though there are no legal definitions of predatory lending in the U.S. there are many state and federal laws against particular harmful lending practices.

To an extent, state laws and enactments could have been restrictive enough to significantly curb predatory lending. However, federal law supersedes local laws and many state laws that could have reduced predatory lending, or at least made loan disclosures more exhaustive, could not produce the desired effect.

Loan servicing abuse, single source mortgage insurance, racial discrimination, lack of borrowers' negotiation awareness and unclear mortgage loan terms and conditions are of the most common predatory lending approaches.

Predatory Lending on the Basis of Race

Predatory lending and especially some subprime lending practices have been examined thoroughly by organizations as ACORN and AARP with concerns about racial mortgage discrimination. Those organizations state that large lenders deliberately limit the access to better loans to certain minorities, or even whole minority communities. There is certain statistics that shows that comparable income households would get different home loan terms and from different type of lender - minority households are much more likely to get a loan from a dedicated subprime lender, even though loan terms may not be downright subprime.

On the other side of the coin, organizations as the National Home Equity Mortgage Association (NHEMA) advocate for subprime lending, stating it provides access to loans for minority groups that wouldn't otherwise qualify at all for mortgage credit.

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