Predatory lending is a set of ethically questionably lending practices that deceive or pressure customers into agreeing to mortgages that they will not be able to pay back or which include unreasonably high rates. Predatory lending is illegal on both the federal and state levels. California has been enforcing laws against predatory lending since 2002.
Mortgage lenders in California are not allowed to engage in lending practices that deceive the consumer into spending extra money or agreeing to loans that are not in his best interest. Common prohibited behaviors include flipping, where the lender continually changes the terms of the loan so that the consumer ends up with a higher interest rate or bigger payments than originally expected; packing, or adding extra products for an extra cost without explaining the products or cost to the customer; and charging unreasonable or excessive fees.
Prohibited Loan Types
California's predatory lending laws apply to most home loans of less than $417,000 as of 2011. Consumers are protected from all loans where the total is less than this maximum if the principal is less than $250,000 and the annual percentage rate exceeds the APR on dividends from Treasury bonds with similar dates of maturity by at least eight points. Lenders must also not offer loans where the fees payable at closing exceed six percent of the total loan cost. The law does not apply to home equity lines of credit; be wary when taking out this type of loan.
Statute of Limitations
Consumers may sue predatory lenders for damages if the lender makes an improper loan or does not follow disclosure procedures. However, consumers have only two years to do so under California's predatory lending laws as of 2011. After the statute of limitations expires, consumers may no longer engage in civil lawsuits against predatory lenders. If you discover you are the victim of predatory lending, contact your attorney as soon as possible to avoid the possibility of missing the statute of limitations.
California allows municipalities to enforce stricter penalties for predatory lending than those called for by state law. Oakland, for example, has a much stricter guideline for predatory lending than the state of California does. Cities where there is a high standard of living may enact stricter ordinances because the principal on homes is generally higher than that covered by predatory lending laws.