She was 94 years old.
Sheriff sale of her home was scheduled to take place the following day.
When asked why she waited so late to seek help, she explained that she
was embarrassed and ashamed. She had taken a home equity loan to pay off
debts and for home repairs. A lender recommended contractor never completed
the work. On further review, we found that the debts should have been
paid out of the proceeds of a previous loan taken only two years prior.
None of the debts were paid in either transaction. She left the closing
table both times with no money in her hand.
Luckily, though extremely rare, I was able to stop the sheriff sale. Hers
turned out to be a case of clear-cut fraud. None of the proper disclosures
were made. Prudent lending practices and underwriting guidelines were
ignored. Creditors were not paid as promised and we found a host of other
violations. By all standards, this was a predatory loan.
Others are not so easily identifiable.
Like the case of Mary's (fictitious name);
she kept receiving mortgage pre-approval solicitations in the mail.
Get your roof repaired.
Pay off those debts.
the lure was too great. What a thrill it would be to consolidate her bills
and make one payment, she thought. Plus, she'd get to upgrade her electric
service. She could run her air conditioners then without the threat of
an overload. She filled out the application on one of the solicitations
and mailed it in. Surprise! She was approved. Everything from that point
began to move quickly. The loan disclosures were sent. They even offered
to help her find a contractor. She agreed. A contractor showed up within
two days. While he was not an electrical contractor, he had one on staff
that would come out the following day. While there, he pointed out other
items that she could use.
In the end, she purchased a new kitchen, aluminum siding and, of course,
the electrical work. She signed everything and closed the loan in three
weeks. The interest rate on the loan was variable, starting at 16.9%.
She consolidated a. SBA disaster loan at 3.58%, a fixed rate second mortgage
at 9.5% and a credit card at 17.9%. The prevailing rate at the time of
her transaction was roughly 8%. Her credit was good; she was eligible
for the going rate at that time. In her instance, was fraud committed?
We didn't find any.
All terms of the loan were properly disclosed. We found no hidden fees.
Was there a relationship between the contractor and the lender? Maybe,
but we couldn't establish one. Was the interest rate onerous? Under current
Was she targeted or was it strategic marketing? Was it a bad consumer
These two cases are real.
The two examples I give show the complexity of the broad range of questions
we now face. Defining what should be considered predatory lending and
then, figuring out what to do about it is the hot topic of the day. Should
we require mandatory counseling before purchasing home equity loans? Should
we require new laws and greater disclosure? Should usury rate limits be
adjusted? In both examples, intervention would have helped. In the first
example, clearly, enforcement of existing laws, perhaps development of
new laws and penalties would be in order. In the second example, consumer
education is the key. We must work together to find answers to these questions
so that we may continue to find ways to protect consumers in these very