Predatory Lending

Life happens. We get it. Unexpected expenses can leave you feeling hopeless and alone. Sometimes payday lenders and loan sharks seem like the only option. We’re here to change that. Because when it comes to banking, it should always be about you. You have the power to control your finances. You do not need to feel stuck in the cycle of bills.

Not all financial institutions are created equal. While some places, like credit unions, are not-for-profit and exist to benefit their members, there are lenders out there who are attempting to make as much money as they can on their customers. These businesses use unscrupulous practices to squeeze every penny they can out of you. One of the best ways to avoid being prey is it be educated on their business practices and alternative lending solutions from those who have your best interest in mind.

What is Predatory Lending?

Predatory lending typically means imposing deceptive, unfair, or abusive terms on borrowers. In many cases, these loans carry very high-interest rates and fees, stripping the borrower of equity all to the lender's benefit.

Predatory lenders often use aggressive sales tactics and exploit borrowers’ lack of understanding of financial transactions. Through deceptive or fraudulent actions and a lack of transparency, they entice, induce, and assist a borrower in taking out a loan they will not reasonably be able to pay back.

For example, a loan shark is the archetypal example of a predatory lender—someone who loans money at an extremely high-interest rate and may even threaten violence to collect on their debts. However, a great deal of predatory lending is less obvious and is carried out by more established institutions such as finance companies, attorneys, mortgage brokers, banks, or real estate contractors.

Predatory lenders often target communities where few other credit options exist, which makes it more difficult for borrowers to shop around. They lure customers with aggressive sales tactics. They can often be found in quantity in areas they deem valuable for targeting - think of Asheville Highway in Spartanburg or White Horse Road in Greenville where predatory lenders line the streets eager to catch their next prey.

Predatory Lending Tactics & Products

An informed borrower is a protected borrower. Staying aware of the tactics predatory lenders use is the first step to protecting yourself and your finances. Here are some common tactics used:

• Payday Loans: These are small loans that assist borrowers living paycheck to paycheck, they help to bridge the deficit between paychecks and are a temporary band-aid to a larger problem. These loans will often catch up with the borrower and leave you in a vicious re-payment cycle, in fact, as high as 80% of borrowers end up as repeat customers^. Payday lenders operate online and through storefronts and can carry interest rates of up to 780%^^.

• Excessive Fees: Not included in the loan’s interest rate, lenders won’t disclose fees upfront, they will try to hide them from you and they can really add up! Some fees may include pre-payment penalties, meaning you’ll be charged for paying off your loan early, but wait, you’ll also be charged if you pay it too late. The only real winner is the lender.

• Balloon Payments: This is when predatory lenders require you to make your largest payment at the end of your loan term, they do this to make your monthly payment look more affordable and when that last payment is out of your budget and you’re unable to pay off your loan then you’ll either need to refinance the loan (which generates more fees), you’ll incur heavy fees, or you’ll default on the loan (defaulting means that you’ve failed to repay the loan, this can heavily affect your credit score, your ability to borrow in the future, and could possibly mean that any collateral you’ve placed on the loan will be repossessed).

• Buy Here, Pay Here Lots: Unfortunately, when it comes to money, if it sounds too good to be true, it probably is. “Bad Credit? No Credit? No Problem!” sounds great, but is it really? Many “Buy Here, Pay Here” Lots charge interest rates that can surpass 30% on vehicles with well over 100,000 miles on the odometer. Many repossess aggressively and put consumers into deals they cannot afford, increasing their chances of default. They often tack on unnecessary warranties and fees that can really inflate the price tag.

• Loan Flipping: The predatory lender will pressure you into refinancing your loan, again and again, generating new fees each time. Those who borrow from predatory lenders often get caught in a cycle of borrowing.

• Asset-Based Lending/Title Loans: Asset-based lending is when you place a valuable item up as collateral for the loan, this is your promise to the borrower that you will repay the loan or risk losing that collateral. While asset-based lending is common, even at the credit union, it can be predatory when the lender actively tries to set you up for failure. Roughly one in five borrowers will have their vehicle seized because they’re unable to repay the loan^^^, this is not only a financial loss but can also threaten access to jobs or child care for the family.

• Subprime Mortgages: Because home loans are backed by the borrower’s real property, a predatory lender can profit on loan terms stacked in their favor and also the sale of the foreclosed home if the borrower defaults - this makes mortgages very desirable to predatory lenders. While using your home as collateral is not uncommon in mortgage lending, you should be aware of current rates and be certain that your lender is being fair in terms and interest.

Alternative Borrowing Options and Products to Help

At Carolina Foothills Federal Credit Union, we exist to move you forward. We are a not-for-profit financial cooperative where you are an owner of the credit union. Our “fine print” is not fine, we are transparent about your terms and rates so there are never any surprises. Our employees are local, serving in six branches across the Upstate of South Carolina, which means that if you have questions about a product or service, we can sit down over a cup of coffee (or ice cream on Fridays) and we’d be happy to answer any of your questions. Here are some helpful alternatives and ways we may be able to help if you’re currently borrowing from a predatory lender:

• Personal Loans instead of Payday Loans: If you’re needing a little bit extra to get by then a Personal Loan could be a great option! With a Personal Loan from us, you could pay as little as 9.9% APR*, that sure beats 780%!

• Auto Loans instead of “Buy Here Pay Here” Loans: Whether you’re interested in a “buy here, pay here” loan for convenience or because your credit is less-than-awesome, ask us about auto loans that start at 3.49%APR* for a used vehicle and we often say yes when others say no.

• Mortgages instead of Subprime Mortgages: Your credit union offers mortgages, in fact, our Mortgage Lender, Angela, is an expert at getting members into their dream homes with a monthly payment they can afford. Your home should be a place of safety and memories, we have no interest in taking that away from you, our mortgages are set up to help you succeed.

• Already have a Title Loan? We may be able to work with you on refinancing that auto loan and getting your title back into your hands!

• Need to Raise Your Credit Score? We offer a Credit Building Loan, a $1,000 loan that is dispensed to you in 12-increments throughout the year, you pay the dispersed money back and the consistent on-time payments help to build your credit score!

• Free Financial Coaching: One of the things that sets Carolina Foothills apart is our desire to help you achieve your financial goals - it’s one of the biggest driving forces behind what we do. One of the ways we help members achieve their dreams is by offering Free Financial Coaching. In fact, we have at least one certified Financial Coach in each of our branches, including some bi-lingual coaches. So whether you’re looking for help creating a budget, getting out of debt, creating a savings plan, or you just have questions, give us a call to set up an appointment!

No Credit Check Loan

Also known as our Cooperative Loan, was created in response to toxic payday lenders, this no credit check alternative helps members in times of need. This loan is based on a mutual relationship between you and the credit union, for that reason, there are specific requirements for this loan. To qualify for the Cooperative Loan, you must:

• Be a member of CFFCU for at least six months

• Have established direct deposit for at least 90 days

• Have an open checking account with at least six months of history

• Meet with one of our financial coaches

  • Terms:

    • No Credit Check

    • Up to $500.00 with 12 monthly payments at 17.99%APR*

    • Complete the term with on-time payments and you’ll be approved for a Cooperative Loan up to $1,000.00!

Move Forward Timeline

If you’re credit is less-than-awesome and you choose to partner with Carolina Foothills, here’s a timeline of what you can expect for getting your finances back on track:

Questions to Ask

So now you know some common tactics and products that Predatory Lenders use to ensnare unsuspecting borrowers. Here are some good questions to ask any time you’re borrowing money:

• What is my interest rate? - Rates can vary a lot from loan product to loan product, but as a rule of thumb, if you hear anything above 30%, run!

• What is my monthly payment?

• Will my monthly payment be the same each month? - Remember the balloon payment method, make sure they are not trying to add higher payments at the end of the term.

• Are there any fees?

• What are the penalties for early payment?

• Can you provide a list of penalties and fees? - Any good lender would be happy to disclose this information in full.

• What happens if I default on a loan?

• Do you mind if I step away and think about this? - Predatory Lenders will often act as though it is urgent that you sign right away!

• I think I’m going to compare these rates to my credit union, is that okay? - Predatory Lenders do not want you to compare, because then you’ll see just how bad of a deal you’re really getting.

• Don’t take excuses - anything from “our printer is broken” to “I’ll have to ask my boss when they get back from lunch” could be trying to avoid answering your questions.

Predatory Lenders are among us, in Spartanburg, Greenville, Gaffney, and Mauldin. Staying aware is the number one way to avoid falling victim. If you have any other questions about this topic or anything financial, give us a call at 1.800.922.4403.

Stop relying on sharks. Start relying on Carolina Foothills. We exist to move you forward.

^Consumer Financial Protection Bureau. "Final Rule, Payday, Vehicle Title, and Certain High-Cost Installment Loans—Revocation Rule."

^^Consumer Federation of America. “How Payday Loans Work.”

^^^Consumer Financial Protection Bureau. "CFPB Finds One-in-Five Auto Title Loan Borrowers Have Vehicle Seized for Failing to Repay Debt."

*Annual Percentage Rate. Rates, terms, and availability are based on individual creditworthiness and are subject to change without prior notice.