The subprime financial market of the past decade has precipitated today’s global recession and has left an aftermath of financial and credit ruin in its wake. Many questions have been raised regarding the need to balance solid lending guidelines with good consumer awareness – the imbalance of which has been construed as predatory lending. Even more frustrating is that many borrowers have learned from their financial mistakes and are finding it extremely challenging to obtain new credit.

These questions are certainly nothing new. The U.S. Treasury Department and the Department of Housing and Urban Development (“HUD”) have been working through predatory lending issues for over ten years. Today’s global recession has simply placed a spotlight on the issue of predatory lending because it has shifted from affecting just lower class individuals to affecting middle class and upper middle class individuals as well.

The government has been studying predatory lending practices for years. There is no official legal definition for predatory lending, nor is this term mentioned in the Truth-in-Lending-Act; however predatory lending can be easily defined as any lending, whether undertaken by a creditor, broker, or home improvement contractor, which involves engaging in deception or fraud; manipulating the borrower through an aggressive sales tactic; or, taking unfair advantage of a borrower’s lack of understanding about the loan terms. The passing of the Fair and Accurate Credit Transactions Act (FACT Act) of 2003 set the stage for the government to form the Financial Literacy and Education Commission. This Commission can be found at www.mymoney.gov and is the government’s attempt to develop a solution which enables borrowers to educate and empower themselves in the financial and credit world.

Predatory lending usually is backed by collateral that, in the event of borrower default, can be repossessed or foreclosed on usually, until recently, allowing the creditor to profit from the default. Today’s global recession has redefined the dynamics of predatory lending because not only are the borrowers being negatively affected by default, but also the lenders are suffering financial loss. Businesses which run more compliant and ethical usually end up less scrutinized by the government than those which are less compliant.

Increased financial literacy and consumer/borrower awareness is one key to reducing loans that are predatory in nature. Improvement in the following four areas will help curb predatory lending: better consumer financial literacy and disclosure, reducing harmful sales practices, eliminating abusive or deceptive terms and conditions, and regulating the subprime loan market structure.

The victims of predatory lending loans generally suffer from a lack of adequate financial literacy and consumer education must be a necessary strategy for reducing predatory lending. Predatory lenders have been known to target minorities, females, the elderly, and low income borrowers who do not have the ability to repay (asset based lending.) Such lenders have also engaged in loan flipping, mortgage broker and appraisal misconduct, and incomplete payment history reporting on credit bureaus by a lender.

The global recession has proven what previous studies have shown which is that only a limited number of borrowers benefit from the protection of current regulations. The secondary market may knowingly or unknowingly support the activities of predatory lenders by purchasing or securitizing loans that carry abusive terms. Even though the subprime secondary loan market has significantly changed thus far in 2009, harmful sales practices still occur today. Protected groups still are targets of predatory lending terms. Lenders still are not required to report every borrower’s credit history to the credit bureaus.

One of the protections provided to borrowers under the Fair Credit Reporting Act (FCRA) is the right to have a credit report that is not misleading. The Fair Debt Collection Practices Act (FDCPA) further prohibits many types of deceptive collection techniques. Many borrowers like you have learned from previous financial mistakes and are more creditworthy that their credit reports would lead someone to believe.

CMA Financial Corporation is here to help you. We will work with you to improve your misleading credit report so that is will more accurately reflect your true creditworthiness.

Sincerely,

Steven Palmieri

President, CMA Financial Corporation