Beware of predatory lending practices

14 Feb 2006 | Lance Cpl. Heather Golden Marine Corps Training and Education Command

The old adage is: If is looks too good to be true, it probably is too good to be true.

Predatory lending, unfair lending practices that do more harm than good to borrowers' financial situations, has plagued societies in both the past and the present.

Predatory lending tactics can include high fees, penalties for paying off a debt early and incentive payments from lenders to brokers for signing up a borrower at a high interest rate.

One of most common methods predatory lenders use is to purposely grant loans beyond the borrowers' ability to pay it off, said Capt. Kenneth Sheets, the legal assistance officer for the Parris Island Legal Center. Lenders essentially raise the interest rates on loans, knowing full well the payments are more than their customers can handle. Once the borrower fails to pay back a loan, the lender seizes the borrower's collateral. The catch is if the collateral fails to fully compensate the lender for the loan, the borrower is still responsible for the remaining amount owed.

These loans are typically in the form of sub-prime mortgages, or loans to people who do not qualify for so-called "prime" loans due to poor credit.

According to "Shortchanged: Life and Debt in the Fringe Economy," a book by Howard Karger, a social policy professor at the University of Houston, 53 percent of Americans live paycheck-to-paycheck, 56 million Americans don't have a bank account and many more have bad credit.

Two claims that predatory lenders use often are claims of affiliation to the military or advertisements for free transportation, said Michael Archer, a retired Marine major and officer-in-charge of the legal assistance office at Camp Lejuene, N.C.

A lot of these offers for free transportation are nothing more than a means to get customers to the lenders offices or dealerships, for example. Many customers are left stranded with no mode of return transportation if they fail to purchase something, said Archer. 

Younger Marines who lack experience and knowledge are the most susceptible to predatory lending, said Sheets. Marines who have recently returned from a deployment and have more money than usual in their bank accounts are also easily taken in.

"The group that's most at risk tends to be younger Marines, your lance corporals, your [privates first class], ones who just recently finished their training," said Sheets. "It is mostly due to ignorance."

"[Predatory lending] tends to thrive because they are right near large populations [of Marines] who have a regular paycheck for the first time in their lives and who have no experience of financial matters whatsoever," said Archer.

Some alternatives to procuring possible predatory lending loans are taking out loans with a reputable bank or obtaining funds without a loan by taking on a second job, selling property or moving into lower-cost housing, said Archer.

First and foremost, Marines having financial problems should review their debt with a legal assistance attorney, recommends Archer.

Many states have laws to prevent predatory lending practices. According to wikipedia.org, an on-line encyclopedia, the states with the most aggressive anti-predatory lending laws are Arkansas, Georgia, Illinois, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina.

"Like any other lender, payday lenders must comply with the requirements of the Federal Truth in Lending Act. That is, they must conspicuously, and in writing, disclose the annual interest rate and the total finance charge to the consumer. Additionally, there are state and Federal rules that limit the tactics the payday lender can use to attempt to collect a delinquent debt," said Archer in his article about payday lending, "Payday Loans, Common Sense and the Law".

According to govtrack.us, H.R. 458: The Military Personnel Finance Services Protection Act, an act to prevent the sale of abusive insurance and investment products to military personnel, was officially introduced to the House of Representatives on Feb. 1, 2005. The act passed with a resounding 94 percent for the motion, zero percent against the motion and six percent not voting or not present, and is currently being voted on in the Senate.

The new act will regulate financial services to service members by ending hidden fees, halting abusive collection practices and forcing lenders to stop pretending to be associated, either formally or informally, with the military.

Service members can avoid becoming victims of predatory lending all together by educating themselves, said Sheets.

"Know what services are available on base, such as the Navy Marine Corps Relief Society," said Sheets. "Be informed; be concerned when you see high interest rates. Before you purchase, research and make sure you are getting the best deal."
For assistance with financial matters, contact the Parris Island Legal Center at (843) 228-2559.

Marine Corps Training and Education Command