While predatory lending isn’t fraud in the traditional sense of the word, it is still a way that you, the consumer, can be mistreated and misled.

The FDIC defines predatory lending as involving one or more of the following:

• Making unaffordable loans based on the borrower’s assets rather than their ability to repay an obligation.
• Inducing a borrower to refinance repeatedly in order to charge high fees.
• Engaging in fraud or deception to conceal the true nature of the loan obligation.

When it comes to predatory loans, or “pay day loans” as they are more commonly referred, the interest rates are often so high that even on a small dollar loan you will have trouble ever paying it off. We saw an example of a loan for $400 that charged an annual percentage rate of 518.06%!

When consumers end up with one of these loans, they end up owing so much that they will take out a new loan just to make the payment on the first loan. It becomes a vicious cycle and one we don’t want anyone to fall into.

Learn how to avoid falling into the predatory lending trap.