Hurdles Remain in Battle against Predatory Lending
Russell, Malik, The Crisis
Predatory lending is a term associated with loans containing interest rates that are unusually high above prime rate, commonly called subprime loans. Sub-prime lenders prey on unsuspecting borrowers, providing loans that include pre-payment penalties, hidden fees, or balloon payments, which systematically strip equity.
According to the Coalition for Responsible Lending, the public loses $9.1 billion annually due to predatory lending. African American communities receive a disproportionate share of sub-prime loans regardless of credit or income.
"In some cities upper-and middle-class African Americans are more likely to receive a subprime loan than low-income Whites. That to me is more of an indication that it's more of a race issue than the credit quality issue," says Valerie Coffin, researcher at ACORN, a community organizaton of low and moderate income families. She is also co-author of the group's 2002 study on predatory lending, "Separate and Unequal."
Several states, including California, New York and Arkansas, provide protections against predatory lending. In January, South Carolina passed a new comprehensive law against predatory lending. Among other things, the law requires mortgage brokers to advise consumers on loan stipulations and establishes a punitive category for high-cost predatory loans that strip home-owners' equity.
Consumer advocate Sue Berkowitz, of South Carolina Appleseed Legal justice Center, says the law is a huge step in protecting consumers. …