Predatory lending preys upon the economically vulnerable: Jeffrey Kaliel highlights common practices.
Predatory loan practices cover a full range of behaviors, from the fully deceptive to the offering of more expensive credit with devastating fees and interest rates. Washington D.C.-based attorney Jeffrey Kaliel has spent much of his career targeting financial and other behaviors that work against consumers’ best interests.
He advises that knowing some of the more predatory lending practices can help some consumers avoid falling into financial traps. However, with many exploitive loans and credit offers targeting those needing credit and with few options, education only addresses part of the problem.
Jeff Kaliel outlines predatory lending practices to avoid
Aggressive credit offers to bombard all consumers, but for those with lower incomes, repairing their credit, or otherwise just starting in finance, many offers swing to the negative.
From high-interest credit cards with annual fees and monthly maintenance costs with no benefits to frequent offers from payday lenders, these offers are designed to establish a relationship and reel the customer back in, Jeff Kaliel notes.
Rolling over and refinancing fees.
Picture a finance company continually offering additional funds on top of an existing loan with the option to refinance the outstanding balance with new fees. Look at an expensive credit card that caps out the limit at a lower dollar amount but offers a second card with additional annual costs and another extremely low limit. Even homeowners face this scenario when refinancing with new fees is a continuous offer.
The business model is designed to provide the lender with interest to the maximum and more money in fees and costs that can be excluded in interest calculations. When looking for financing, it’s important to assess all fees and consider how they compare to interest charges to determine the overall cost of borrowing.
These disclosures are required by the Truth in Lending Act, but consumers do not always review them in a pinch for cash.
Review other options
Many cash-strapped consumers end up in dire conditions when using payday loans and auto title loans to fill a cash gap between paychecks. With the excessive fees these lenders charge — frequently in excess of 200% and up to 300% in many instances — paying off the loan rarely happens. Instead, the balance is rolled forward each payday.
Jeffrey Kaliel advises it can be hard to break the cycle without an influx of cash but recommends looking for a way to close the gap. Whether it is a short-term job, using a tax refund in full or taking another big step, such as relocating or seeking financial assistance elsewhere, reestablishing monthly liquidity pays off in the long term.
He also advises that those who have fallen victim to these lending practices must share their experience when possible to help others avoid the trap. When a consumer suspects some of the lending practices experienced are illegal, such as discrimination, consider contacting an attorney or filing a complaint with the Consumer Financial Protection Bureau.