Debt Consolidation and Predatory Lending

As you hunt for a debt consolidation loan, remember predatory lenders are on a hunt of their own.

It is startling enough that a debt consolidation loan can force you to place your house or other valuable personal property at risk in order to secure the loan. It is even worse to think that there are lenders out there who are looking for a way to get you to hand over the keys. But that can be the case.

A factor that increases the chances of such a loss is “predatory lending,” a term that authorities use to label a number of unfair loan practices. One common predatory approach is to place an existing mortgage into a debt consolidation loan. The predatory lender can use the distress of a person seeking debt consolidation to charge very high fees. Often, they look for customers with a lot of money built up in their homes.

Predatory loans are marked by things like deceptive terms and conditions, extraordinary interest rates, extremely high fees, balloon payments, repeated financing of the loans (known as flipping), mandatory arbitration clauses, concentrated marketing in minority and poor communities, and targeting older women.

House Committee on Banking and Financial Services testimony from 2000 estimated that at that time, 70 percent of subprime lending was used for credit card consolidation. So if you take this approach, be aware of the risks that are out there awaiting you.