Predatory lending

Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 audit report from the office of inspector general of the US Federal Deposit Insurance Corporation (FDIC) broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers", though "unfair" and "abusive" were not specifically defined.^[1] Though there are laws against some of the specific practices commonly identified as predatory, various federal agencies use the phrase as a catch-all term for many specific illegal activities in the loan industry. Predatory lending should not be confused with predatory mortgage servicing which is mortgage practices described by critics as unfair, deceptive, or fraudulent practices during the loan or mortgage servicing process, post loan origination.

One less contentious definition of the term is proposed by an investing website as "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against".^[2][3] Other types of lending sometimes also referred to as predatory include payday loans, certain types of credit cards, mainly subprime,^[4] or other forms of (again, often subprime) consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.^[5] Although predatory lenders are most likely to target the less educated, the poor, racial minorities, and the elderly, victims of predatory lending are represented across all demographics.^[6][7] The continued occurrence of predatory lending can be viewed as a litmus test for the effectiveness of philanthropic lending that aims to foster entrepreneurship.^[8] Where such philanthropic lending initiatives (microfinance) are widely available, loan sharks and other predatory lenders should not continue to thrive.^[9]

Predatory lending typically occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property. Lenders may be accused of tricking a borrower into believing that an interest rate is lower than it actually is, or that the borrower's ability to pay is greater than it actually is. The lender, or others as agents of the lender, may well profit from repossession or foreclosure upon the collateral.

Predatory lending is often compared to (but not to be confused with) loan sharking, however a key difference between the two is that loan sharks do not seriously attempt to operate within the law.^{[citation needed]}