consumerbrief
800-242-5846
New Jersey Division of Consumer Affairs
www.NJConsumerAffairs.gov
What is
Predatory Lending?
Predatory lending is the use of unfair and abusive
mortgage lending practices that result in a borrower
paying more through high fees or interest rates than
his/her credit history warrants. Due to the complexity
of mortgage transactions, it is often difficult to tell the
difference between a legitimate and predatory loan.
The New Jersey Home Ownership Security Act, which
became law in 2003, provides New Jersey citizens with
some of the strongest safeguards in the nation. The law
is designed to stop predatory lending practices and keep
homeowners from unfairly losing their homes and assets.
Amendments enacted in July 2004 confirmed the law’s
central provisions which provide homeowners with strong
protections from predatory lenders while ensuring access
to credit for New Jersey consumers.
The law protects consumers by, among other things:
■ prohibiting high-cost home loans with balloon
payments*;
■ giving victims the right to protect themselves and
recover damages for violations of the law; and
■ placing tough restrictions on lenders that offer
high-cost home loans.
(* A balloon loan is one in which the monthly payment is not intended
to repay the entire loan. The final payment is a large lump sum of the
remaining principal and is called a “balloon payment.”)
Predatory lending practices have included:
■ Charging excessive interest rates not justified by
the risk involved.
■ Charging and financing excessive points and fees.
■ Loaning money based on the value of the
property, when it is evident that a borrower will
be unable to repay the loan.
■ Packing loans with additional products like credit
insurance or club memberships.
■ Aggressively and deceptively selling single-
premium credit insurance.
■ Charging extended prepayment penalties that trap
people into high-interest loans.
■ Conspiring with home improvement contractors
to solicit loans on damaging terms and/or paying
contractors directly, leaving the borrower no way
to ensure that the work is done.
■ Inflating the appraisal value of a house.
■ Using “mandatory arbitration” clauses that deny
borrowers their rights in court.
■ Misrepresenting the terms and conditions of loans.
■ Using harassing and intimidating collection
techniques.
■ Targeting high-cost loans to vulnerable
borrowers, including the elderly, low income and
minority families.
■ Flipping, or repeated refinancing, which results in
fee revenue for the lender and no benefit to the
borrower.
what-is-predatory-lending • Revised 04/02/24
Continued
800-242-5846
New Jersey Division of Consumer Affairs
www.NJConsumerAffairs.gov
HERE IS WHAT YOU SHOULD KNOW.
■ Think twice before borrowing against your home.
Be sure you know what the payments are going to
be and that you can make them.
■ Shop around. Get at least three written quotes for
up-front costs, interest rates, terms of the loan and
monthly payments.
■ Do not trust ads promising “No Credit? No
Problem!”
■ Do not give in to high-pressure sales tactics.
■ Do not take the first loan you are offered.
■ Remember, a low monthly payment is not always
a “deal.” Look at the total cost of the loan.
■ Be wary of promises to refinance the loan at a
better rate in the future.
■ Avoid balloon payments. The monthly payment
may be small, but the big “balloon” payment that
comes due at the end of the loan period could be
far beyond your means to repay.
■ Under the Truth-in-Lending Act, borrowers can
change their minds for any reason – even no
reason – within three days of signing a contract
in which their homes are offered as security. But
remember – three days is not a long time. It is
better to research and be comfortable with all
aspects of your loan before you sign.
■ Avoid high interest rates, penalties for early
payoff of your loan and monthly payments you
cannot afford.
■ Do not sign a blank document or anything you do
not understand, even if they cancel the loan offer.
■ Ask questions if you do not understand the loan
terms, and show the documents to someone you
trust.
■ Be wary of telemarketers or door-to-door
salespeople who contact you out of the blue
offering bargain loans and claiming that
your bad credit is no problem.
■ Avoid lenders recommende d by home
improvement contractors.
If you feel that you have been victimized, please
contact the New Jersey Division of Consumer Affairs at
800-242-5846 or 973-504-6200 (if calling from outside
the State of New Jersey). You may also contact the
New Jersey Department of Banking and Insurance at
800-446-7467.
In addition, report your experience to the Federal Trade
Commission (“F.T.C.”), which monitors predatory
lending scams and frauds on the national level. The F.T.C.
can be reached, toll free, at 1-877-FTC-HELP (382-4357)
or you may write to: Federal Trade Commission, CRC
240, Washington, DC 20580.
For online consumer information on buying a home, go to
www.hud.gov/topics/buying_a_home which is a page on
the Web site of the U.S. Department of Housing and
Urban Development.
