Notes On Consumer Affairs
During my tenure as the Chair of the Consumer Affairs and Protection Committee, I have worked on many issues to increase consumer protection in the marketplace. Laws have been enacted to stop pyramid schemes, curb telemarketing abuse, stop unsolicited telemarketing calls and to make identity theft a crime. Another consumer issue that has been a growing problem is predatory lending.
With the reduction in current interest rates, more and more people are considering refinancing their mortgages or taking out a home equity loan to make a home improvement or repair. It sounds so simple to borrow money in order to buy a home, make home improvements or cover other needs. While it seems simple to borrow money, it is important to have information about different types of loans and to be aware of predatory lending practices.
There are several categories of loans in the marketplace, all of which are based on an applicant's credit history. The two main groups of loans are prime and sub-prime. Prime loans are loans given at the lowest interest rates and costs to the consumer. These are given to consumers with good credit ratings and are considered a low risk to the lender. Sub-prime loans are a higher percentage loan given to consumers with marginal credit ratings. Although sub-prime loans are more expensive, they provide access to credit for consumers who cannot secure a prime loan.
Where does predatory lending come into play? Predatory lending is an unfair lending practice that takes advantage of consumers. Most predatory lending schemes occur in the sub-prime market. Consumers end up taking out loans they can not afford. These loans usually have unclear conditions and/or cost more than is necessary. This can sometimes lead to a consumer losing their home. Unfortunately, many senior citizens end up being the victims of predatory lending practices.
In order to prevent predatory lending, the New York Legislature enacted A.11856. A.11856 was designed to protect consumers against abuses in the sub-prime lending market. It provides for consumer disclosures and encourages counseling for consumers when applying for a high cost loan. By providing disclosures and counseling, consumers will be more informed when negotiating a loan, thereby reducing the occurrence of unaffordable, predatory loans.
The AARP recently issued these suggestions about what a consumer should know about predatory lending: Be Cautious. Be suspicious of bargain loans or people who promise easy credit. Proceed Slowly. Avoid lenders who call with guaranteed loans and who take over the phone applications or next day approval.
Say NO to lenders who ask for up-front fees to process a loan. Shop around. Contact local financial institutions and credit unions.
Avoid balloon payments. These are loans that have a small monthly payment but require a big balloon payment at the end of the loan period.
Ask questions. Know what the lender is offering: the total cost of the loan, the annual percentage rate, monthly payments, and the term of the loan.
Read carefully before signing. Don't sign a document with blank spaces, have a lawyer or trusted friend review the document.
You can change your mind. You can get out of any loan before you sign. The Truth in Lending Act allows you to change your mind, for any reason, within three days of signing the contract.
Do not feel pressured to sign any paperwork, especially if you do not understand it. Refinancing a home or making home improvements could be the right decision for you. Always proceed with care and shop for reputable lenders. Be careful of loans that reduce your current monthly payment but require a large sum payment down the road. If it sounds too good to be true, it probably is.