| Loan sharking is the practice of lending money to | | | | vicious debt cycle. |
| desperate people at extremely high and illegal rates of | | | | It is appalling that greedy predatory lenders would go |
| interest. Loan sharks, or shylocks, make a big profit | | | | so far as to trick people out of their homes, but it |
| from people who can't get loans from legitimate | | | | happens. Abundant offers for second mortgages or |
| sources, such as banks or other lending institutions. For | | | | use credit card balance transfers to pay off credit |
| as long as people have needed money they don't | | | | card debt come daily in the mail. It's shocking that |
| have, there have been loan sharks there to provide | | | | lenders would encourage you to take equity from your |
| their services for a fee. They introduce themselves as | | | | home to buy a two-week vacation, a hot tub, a |
| a solution to a problem; they are businessmen who | | | | motorcycle, or other big "toys". Would a sensible |
| want to help a borrower get out of a bind. Prey to | | | | person really want to pay 15-30 years with interest for |
| these sharks can be compulsive gamblers, single | | | | some unnecessary material items that make life just a |
| parents, the elderly, illegal immigrants, white-collar | | | | little more fun? These predatory lenders like to remind |
| executives, or anybody else who desperately needs | | | | you of all the improvements you could make in your |
| more money than they have access to. | | | | life if you just had access to the equity in your home. |
| Most people associate loan sharks with gangsters and | | | | They encourage you to dream of everything you're |
| organized crime. Loan sharking is a very lucrative | | | | missing out on because your assets are tied up in your |
| business for criminals, and it's a major source of | | | | house. They sell you on the idea that you'll "save" |
| income for the crime families. They receive a very | | | | money by consolidating your high interest debt. You |
| good rate of return on their investment, and in a short | | | | might have smaller monthly payments... but the debt is |
| amount of time, often a matter of weeks. They may | | | | stretched out over many years, increasing your total |
| charge interest at rates of up to 20% per week, and | | | | interest costs. Many borrowers just rack up new debt |
| possibly even higher. In one New York investigation, it | | | | after getting that second mortgage to pay off bills |
| was found that a loan shark syndicate was netting | | | | because their formerly maxed out credit cards are |
| 3000% annual interest! Dallas mobsters were more | | | | now freed up again. When the borrower can't afford |
| competitively priced, they charged only 585% annual | | | | his mortgage, second mortgage, and new credit card |
| interest. These were rates in the ghetto. Shylocks | | | | debt, the home goes into foreclosure and the |
| would be more competitively priced for corporate | | | | borrower loses everything he's worked for. |
| white-collar businessmen; rates might be more in the | | | | Home-improvement scams have also hit America |
| 5% weekly range. | | | | hard, particularly the elderly. Someone who has been |
| In the mafia world, shylocking is also known as | | | | making regular mortgage payments for many years |
| six-for-five; you borrow five and pay back six at the | | | | has most likely built up lots of equity in their home, |
| end of the week. You can see how this can turn very | | | | which makes them a prime target for these ruthless |
| expensive. If someone borrowed five hundred and did | | | | predators. Contractors offer to make repairs or |
| not have the full payment, the loan shark would accept | | | | improvements to the home, and can even be so |
| the interest payment of one hundred and extend the | | | | "helpful" as to set up financing for the unsuspecting |
| loan for another week, with interest. If they can't pay | | | | homeowner. An elderly widow, who can't do the work |
| when they're supposed to, they would be forced to | | | | herself, is grateful for the nice young man who can |
| take out another loan, interest is added on top of | | | | help her get her home back in shape. When it comes |
| interest and the debt can quickly become impossible to | | | | to the confusing legal jargon in the contract, she trusts |
| get out of. | | | | him and his simple explanation of what it is she's |
| The funds for shylocking would usually come from the | | | | signing. She unknowingly agrees to take out a |
| top, the family boss. The boss would loan money to his | | | | high-interest second mortgage that requires a balloon |
| capos (lieutenants), knowing he could trust them to pay | | | | payment at the end. She later finds out that all her |
| him back with interest. The capos then loan money | | | | payments have gone to pay mostly interest, barely |
| with interest to the lower ranking members of the mob. | | | | making a dent in the principle owed. She can't pay the |
| These are the loan sharks that made loans to the | | | | huge balloon payment when due, and loses her house |
| common citizen, and enforced payment. | | | | in foreclosure. It is unfortunate that these predators are |
| Loan sharks ensured payment with threats of violence. | | | | willing to put someone's grandmother out of her home |
| They require no collateral other than the borrower and | | | | to make their fortune. |
| his family's well being. "Leg-breakers" were often | | | | My neighborhood is several years old and a part of it |
| employed by loan sharks to be sure they receive | | | | is still in construction. This addition draws many |
| payment. It's not true that people were always killed if | | | | first-time homebuyers. When I shopped for mortgages, |
| they didn't pay. Dead people can't pay back their | | | | I thought it was odd that my builder's mortgage lender |
| debts, so it would not be good business practice to | | | | approved my loan for an amount about 30% more |
| eliminate resources. They would occasionally "make an | | | | than a regular mortgage broker could get for me. Don't |
| example" of some who owed very little to be sure | | | | we all want the best house we can afford? It's |
| other borrowers took them seriously. The borrower, | | | | tempting to take a mortgage that's barely affordable, |
| worrying about life and limb of himself and his family, | | | | to get that bigger house with more options. It's |
| would have no option but to pay the shylock even if it | | | | interesting to note that there are quite a few |
| meant he had to lie, cheat, or steal. | | | | foreclosures in this neighborhood, usually the houses |
| Modern Day Predatory Lending | | | | that are about two years old. On brand new homes, |
| There is no legal definition for predatory lending, but it | | | | you would only pay taxes on the value of the empty |
| generally includes the use of unethical practices by | | | | lot, that is, until it is reassessed with the value of the |
| lenders who use tactics that skirt around the law. They | | | | house on it. This happens where I live about a year |
| might give unfair loan terms, use confusing language, | | | | and a half after the home is built and closed on. The |
| charge hidden fees, and use high-pressure sales | | | | mortgage lender does warn you that your payments |
| methods. They make money as long as they can | | | | will go up in a couple of years after the taxes are |
| keep borrowers in debt to them. They commonly | | | | reassessed, but still approves your mortgage based |
| target the elderly, low-income, minorities, or people with | | | | on your current income and the tax on the empty lot. |
| poor credit, but anyone can be a victim of these | | | | You might not think much of it then because you |
| unscrupulous lenders. Predatory lenders thrive on | | | | believe you'll figure something out by the time your |
| consumers who need or want more than they can | | | | payments go up. About 18 months later, your PITI |
| afford to have, and trick borrowers into believing the | | | | payment increases by a couple of hundred dollars a |
| loans are necessary and affordable. | | | | month, but your income hasn't. Many families have lost |
| Many commonly accepted loan services are available | | | | their homes to foreclosure because they weren't |
| to consumers that work on the same principles as a | | | | prepared for this dramatic increase in payment. |
| mob shylock. There are laws regulating the amount of | | | | Predatory lending has many more faces; I gave just a |
| interest that can be charged for a loan, but lenders can | | | | few examples. You've heard of scams people have |
| charge "service fees." Check cashing places offer | | | | reported in the newspapers. You can read about |
| "payday loans", you can write them a post-dated | | | | victims in internet blogs. The nightly news is always |
| check for the amount of the loan, plus a hefty fee for | | | | showing a new story about a new way predators are |
| use of that money for a week or two. The fees can | | | | trying to take our money. You've seen the ads that |
| amount to 400% APR, these places are happy to loan | | | | the lenders themselves have run. These unscrupulous |
| as much as possible based on the borrower's | | | | businesses may be fraudulent, or just plain tricky. They |
| expected paycheck. Then what happens when he | | | | thrive on the "Gotta have it now" attitude that many |
| gets his paycheck and realizes that it's already spent? | | | | consumers live by. The only way to protect yourself is |
| He'll go back to take out another payday loan so he | | | | to educate yourself. I've referred to the borrowers |
| can pay his bills and buy groceries. This cycle of | | | | several times as "victims", but truly they are victims of |
| borrowing more to pay back a loan can trap a person | | | | their own lack of awareness. |
| into being perpetually in debt and never getting ahead. | | | | Protect Yourself From Predatory Lenders |
| These places are usually found on the same block as | | | | - Use your financial common sense; if you can't afford |
| a liquor store in low-income neighborhoods. These | | | | it, you shouldn't buy it. |
| lenders prey on people with limited means and | | | | - Plan a realistic budget and stick to it. |
| encourage them to live paycheck to paycheck. | | | | - Have a savings plan so that you'll be prepared in |
| Title loans are another way people are getting ripped | | | | case of a true emergency. |
| off. People who own their car free and clear can bring | | | | - Keep your credit rating high so that you won't be |
| in their title and an extra set of keys, and drive away | | | | forced to go with "sub-prime" lenders, where predatory |
| with up to half the value of their car. They agree to a | | | | lending is common. |
| loan at an extremely high rate, or with a large balloon | | | | - Be skeptical about quick fixes and easy money. |
| payment without realistically being able to pay. The title | | | | - If it sounds too good to be true, it probably is. |
| loan companies don't care what kind of credit the | | | | - Bad credit, no credit, no problem! This is one of |
| borrower has, because they win either way. They | | | | predatory lenders favorite lines. |
| receive an excellent profit on the interest charges or | | | | - Buy here, pay here! Rent to own. No money down! |
| they repossess the car and sell it for twice the loan | | | | You must act now! Some of their other favorite lines. |
| amount. Sounds like a "can't lose" situation for them, so | | | | - Any loan, including your first mortgage, which uses |
| it must be a "can't win" situation for the borrower. | | | | the equity in your house as collateral should be looked |
| I've heard predatory commercials on the radio from | | | | at very carefully. |
| car dealerships. The announcer might say something | | | | - Know what it is you're signing, and never sign |
| ridiculous like, "We'll give you $5000 for your trade on | | | | documents that don't have all the terms filled in. |
| anything you can push, pull, or tow in here, and we | | | | - If you don't understand the contract in question, |
| don't care how ugly it is!" We'd all be rich if we could | | | | consult an attorney. Lawyer fees can be a bargain |
| sell junk cars for $5000, but who would buy one? | | | | compared to the potential loss. |
| These predatory lenders just add that $5000 that they | | | | - Shop around for loans of any kind; never say yes to |
| "gave" you to the price of your new car being | | | | the first offer. |
| financed. You'll drive away in a shiny new car and you'll | | | | - Visit The Center For Responsible Lending for |
| get stuck with a loan for $5000 more than the car is | | | | information about laws to protect you, or how you can |
| worth. | | | | get involved in the fight against predatory lending. |
| What if you owe more on your trade-in than it's value? | | | | - Don't let salesmen pressure you into something you |
| It's known as a negative equity loan or an upside down | | | | aren't sure about. |
| loan. This is quite common, considering car dealers | | | | - Refuse to take out more loans to pay off already |
| want to sell expensive cars more than cheaper ones, | | | | unmanageable debts. |
| and consumers want to drive the best car they can | | | | - Beware of the temptingly low interest rates that |
| get a loan for. Cars depreciate faster than the loan | | | | skyrocket after you've had enough time to shop more |
| can be paid down, and when you spread the | | | | than you should. |
| payments over five or six years instead of three, this | | | | - Take responsibility for your financial well-being. |
| can amount to thousands of dollars. Eager to sell you | | | | - Predatory lenders are out there taking money, but |
| another new car, dealerships work with lenders and | | | | don't let them take yours. |
| add the difference to your loan amount, ensuring that | | | | |