Predatory Lending Considerations
Subprime lending is not synonymous with predatory lending, and loans with the features described as Subprime are not necessarily predatory in nature. However, institutions should ensure that they do not engage in the types of predatory lending practices discussed in the Expanded Subprime Guidance. Typically, predatory lending involves at least one of the following elements:
- Making loans based predominantly on the foreclosure or liquidation value of a borrower’s collateral rather than on the borrower’s ability to repay the mortgage according to its terms;
- Inducing a borrower to repeatedly refinance a loan in order to charge high points and fees each time the loan is refinanced (“loan flipping”)’or
- Engaging in fraud or deception to conceal the true nature of the mortgage loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.
Institutions offering mortgage loans such as these face an elevated risk that their conduct will violate Section 5 of the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive acts or practices.
In North Carolina in addition to reporting suspicions of Predatory Lending to the Federal Trade Commission you should also register your complaint with the Office of the North Carolina Commissioner of Banks.
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