What are the Different Types of Predatory Lending Laws?

Predatory lending laws are laws that are set up by governments to eliminate or curb practices by lenders that seem predatory or unfair to the borrower. Every nation has its own predatory lending laws, which are often affected by consumer advocacy groups and elements of a government that are responsive to consumer concerns. Several different kinds of predatory lending laws work differently to regulate the activities of large and small lenders under a national or regional government.

Some types of predatory lending laws are housed under more general national legislation that has to do with a nation’s financial industry and central banking system. Others are more directly legislated to pinpoint specific activities by certain parts of a lending industry. These two different types of lending laws can both be effective in regulating trends that seem to be harming the citizens of a particular country.

There are predatory lending laws that primarily go after lenders who are charging too many costs and fees in a certain kind of loan agreement. Other categories of lending laws relate to the tricky or deceptive use of interest rates, for example, such as the idea of offering “teaser rates” that tempt in consumers through low interest projections, but then raise the interest rates dramatically, trapping borrowers in eternal debt. In pursuing lending laws around interest rates that affect monthly payments, governments and advocacy groups often evaluate the average income of the borrower and how this affects his or her ability to repay the average loan.

While many lending laws relate to transparent practices by lenders, others actually regulate the loan offers that lending companies make. Within many governments, there are general agreements on what kinds of lending charges are considered egregious or excessive. In some cases, lobbyists from a lending industry may seek to appeal these ideas and reject the consensus of regulators and consumer advocates, bringing dissenting data or opinions to the table in order to try to sway legislators away from effectively promoting certain kinds of regulation. This whole process often comes to resemble a complex “Casino” environment where independent observers come away feeling like the process is being manipulated.

In various democracies, where lending and financial law seems directly tied to voter sentiment, the idea of regulating predatory lending practices sometimes leads to a greater evaluation of how voters may vote for or against their own economic interests. Some economic experts are left with the feeling that consumers might "deserve what they get" by neglecting to vote overwhelmingly for parties or legislators who would advance the interests of the consumer against the interests predatory lenders. Controversies that surround these kinds of debates often focus on special interests, and how these interests might shape a national conversation or financial law.