What is a payday loan and other types of predatory loans?


Financial watchdog groups have raised concerns about predatory lenders taking advantage of low-income Americans who need cash fast as soaring inflation squeezes consumers.

So what is predatory lending?

Predatory lending imposes unfair or abusive loan terms on borrowers, including triple-digit interest rates and tight repayment terms. Meanwhile, a “fair” loan guarantees the same lending opportunities to all consumers, including low-cost loans for those with good credit scores, according to federal guidelines.

A predatory lender can also persuade a borrower to accept abusive terms through deceptive, coercive, exploitative or unscrupulous actions, according to Orlando-based debt.org, an online site that provides advice from financial experts. An example is lenders targeting borrowers with credit problems or who have recently lost their jobs.

Predatory lending practices can also include fraudulent, deceptive and unfair tactics that lenders use to “trick” consumers into loans they cannot afford, according to the U.S. Attorney’s Office for Eastern Pennsylvania, who cites high mortgage costs as contributing to borrowers who cannot keep their homes in good repair.

A person rides a scooter past a check cashing and payday loan store on March 11, 2022, in downtown Los Angeles.
PATRICK T. FALLON/AFP via Getty Images

The Center for Responsible Lending, a North Carolina-based nonprofit research organization working to end predatory lending, released a study in late September that looked at the “persistent harms of high-cost installment loans.” , a form of predatory lending that includes “rental” bank loans. The group says it found that predatory lending had a greater impact on people of color and low-income people.

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USA Today

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