Who Can Provide Help for Victims of Predatory Lending?

Predatory lending practices are harmful to both individual borrowers and the credit markets at large. A predatory lender provides loans against the better judgment of a financial institution in exchange for very high interest rates. Many of these loans will go into default, but the high fees charged are meant to compensate for this problem. When a person is victim to predator lending, the person may have been enticed to take a loan he or she could not afford. In this case, there are several options for assistance in recovering from the debt.

Federal Housing Administration Relief Programs

There are two primary programs that provide relief for mortgage borrowers who are victims of predatory lending. The first is refinancing through the FHA. This is an option to borrowers who were issued sub prime mortgages they can no longer afford due to variable rate adjustments. Borrowers must prove they are could have continued to pay the mortgage, if the rate did not adjust, in order to be eligible to refinance with a fixed rate FHA loan.

The second option is tax relief for individuals who have had debt forgiven. Debt forgiveness can occur when a home is foreclosed on. The lender liquidates the home for a smaller cost than is remaining on the loan, and then the lender simply erases the remaining mortgage debt. The borrower essentially received a gift through the erased debt, and this gift is technically taxable. For forgiven mortgage debt incurred between 2007 and 2012, taxes may be avoided.

Consumer Protection Agency

The Federal Trade Commission Bureau of Consumer Protection helps victims of unethical lending practices avoid legal judgments. This agency oversees lenders to assure they are meeting national guidelines. For example, the Credit Card Reform Act of 2009 makes it illegal to raise the interest rate on any debt already incurred on a credit card if the card rate goes up.

The agency cannot reasonably watch all debts issued by all lenders. As such, it is the borrower's responsibility to report a suspected misdeed. When a borrower reports this to the  agency, the agency will look into the claims and attempt to correct any problems. If nothing else, the agency can issue a recommendation to have the debt erased in court. 

Bankruptcy Protection

Bankruptcy is often associated with negative results in common language. However, bankruptcy is actually a legal protection from creditors for borrowers who have come into too much debt. There are a number of negative consequences to filing, such as losing assets, a damaged credit score and other personal issues. In the end, though, borrowers who qualify for bankruptcy will feel relief through filing.

Once a borrower files bankruptcy, all lenders must stop legal actions and attempts to collect. The debts are handed over to a court, and the court will resolve any questions of how to settle the debt. The court will likely settle many debts for lower than the remaining sums owed. The court will also make decisions for the borrower on which assets to sell, which can be a hard thing for a borrower to do without guidance.


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