Let's Put The Cuffs On Predatory Lenders

In low-income and minority communities in Philadelphia, across the state and across the nation, a rogue band of lenders using predatory techniques have been stealing people's futures.

Using aggressive - and often abusive - sales practices, deceptive products and complex financial instruments, they target elderly, minority homeowners who have paid off most of their mortgages through years of hard work and sacrifice.

Predatory lending practices target people for loans that carry extraordinary fees (often exceeding 10 percent of the loan amount), unnecessary and extraordinarily expensive insurance, and other features that make it unlikely that the borrower will ever be able to repay the loan.

If the borrower does pay, the lender profits mightily. If the borrower has trouble repaying, many predatory lenders refinance the loans, adding in still more high fees and unnecessary, expensive insurance. Many borrowers with predatory loans end up owing thousands and thousands of dollars more than they need to borrow.

Predatory loans also include "payday" loans (secured by a paycheck) with interest rates exceeding 100 percent offered through check-cashers and pawnshops.

Predatory lending practices take advantage of people trapped in gaps in access to conventional financing. Community development financial institutions (CDFIs) such as The Reinvestment Fund in Philadelphia have emerged over the past 30 years to fill these gaps. More than 500 CDFIs nationwide have provided more than $6 billion in loans and investments to benefit economically disadvantaged people in low-income communities. In that time, they have created hundreds of thousands of affordable housing units and jobs. They have helped economically disadvantaged people and communities build billions of dollars of wealth.

Unfortunately, CDFIs and other responsible lending institutions alone do not begin to offset the damage done by predatory lending practices.

That is why Philadelphia City Council's decision last month to focus on predatory lending practices can be an important step toward ending this practice. By taking a strong stand now, the city can serve as a catalyst to protect vulnerable populations across Pennsylvania and the nation. Fortunately, Council is convening a meeting this week to begin planning a course of action.

Philadelphia and Pennsylvania have an opportunity to join in a national effort to combat predatory lending. Here are some of the ways this can happen: