4 Predatory Lending Laws that Protect Home Buyers

Predatory lending is difficult to define, but it generally means providing a loan against the better judgment of the lender. Predatory lending can also mean failing to disclose all information needed for a borrower to accurately assess the loan. The principal of ethical lending stems from the idea lenders are the most able to determine when a borrower is eligible for a loan and what type of loan the borrower can afford. Enticing a borrower into taking a loan the lender has reason to believe he or she cannot afford can be interpreted as unethical. Several laws provide for resolving the issue in this case.

Truth in Lending Act

Since 1968, the Truth in Lending Act has required lenders provide information on all key loan terms up front. Withholding any of this information is against the law and can result in a nullified debt. The TILA does not actually monitor how much lenders can charge for services. Instead, it requires the lenders to provide accurate information on how and why rates are presented in order to allow a borrower to make an informed decision. In some high cost mortgages, the TILA may actually regulate the charges that can be assessed. 

Mortgage Forgiveness Debt Relief Act

When you take a mortgage, you are actually earning an income in the sum of the mortgage loan. At the time, taxes are not assessed because you will be repaying the income. Debt forgiven when a mortgage goes into foreclosure, though, can be counted and taxed as income. The mortgage crisis of 2007 saw a record high number of foreclosures due to predatory lending practices. Debts forgiven through foreclosure between 2007 and 2012 are not taxable as a result of the Mortgage Forgiveness Debt Relief Act.

Fair Credit Reporting Act

The Fair Credit Reporting Act established oversight of credit monitoring bureaus. This act regulates the type of information that may be reported on a credit score and how the information is disseminated. If a borrower has had debt cancelled due to legal judgment, the debt cannot appear on a credit score. This can occur when a court forgives debt because it was given against other protections. In this case, a borrower can report the problem to the credit bureaus and ask the debt be removed. If the bureaus do not respond, the borrower can file a complaint according to the FCRA. 

Credit Card Reform Act

The Credit Card Reform Act of 2009 is not solely intended for home buyers. However, home buyers often fall victim to bad credit card loans with home equity lenders. These lenders offer high limit cards to home owners who have expensive properties, even if the home buyers cannot afford these loans in addition to their mortgages. Since the loans are typically offered with variable rates, the finance charges can be extreme. The Credit Card Reform Act limits the extent to which cards can be offered and how rates can be raised. Credit card companies, most notably, cannot raise rates on pre-existing loan debt.