Imposing unfair, deceptive, or abusive loan terms on borrowers, often targeting vulnerable communities
Predatory lending refers to the practice of imposing unfair, deceptive, or abusive loan terms on borrowers — typically targeting individuals with poor credit, limited financial literacy, or few alternatives. Predatory lending practices include excessive interest rates, hidden fees, balloon payments, loan flipping (repeated refinancing that strips equity), and steering qualified borrowers toward subprime products.
The subprime mortgage crisis that triggered the 2008 financial collapse was built on predatory lending. Major banks and mortgage companies systematically originated loans to borrowers who could not afford them, using adjustable rates that started low and reset to unaffordable levels, requiring no income verification ("liar loans"), and targeting minority communities with higher-cost products even when borrowers qualified for better terms — a practice documented by the Department of Justice as "reverse redlining."
Wells Fargo paid $175 million to settle DOJ charges that it steered Black and Hispanic borrowers into subprime mortgages while offering white borrowers with similar credit profiles conventional loans. Countrywide Financial, the nation's largest mortgage lender, paid $335 million in a similar settlement. These fines were a fraction of the profits generated, and no senior executives were criminally prosecuted — a pattern that reinforces the predatory dynamic.
