Predatory lending practices can adversely affect:
Click on the arrows to vote for the correct answer
A. B. C. D.A
Predatory lending refers to the unethical practices of lenders who take advantage of borrowers by offering them unfair, abusive, and often illegal loan terms. Such practices can have a significant impact on borrowers and the banking industry. Specifically, predatory lending practices can adversely affect a bank's CRA rating, equity shipping, and loan quality control reviews.
A. A bank's CRA rating: The Community Reinvestment Act (CRA) is a federal law that requires banks to serve the credit needs of their local communities, particularly in low- and moderate-income areas. CRA ratings are assessments of a bank's performance in meeting the credit needs of its local community. Predatory lending practices can lead to higher default rates, which can negatively impact a bank's CRA rating.
B. Equity shipping: Equity stripping is a predatory lending practice in which a lender makes a loan to a borrower based on the equity in their home, with the intention of taking possession of the property in the event of default. This practice can be devastating for borrowers, as it can result in the loss of their home. It can also lead to reduced equity for the bank, as the property may not be worth as much as the outstanding loan balance.
C. Loan quality control reviews: Predatory lending practices can also impact a bank's loan quality control reviews. Such reviews are conducted to ensure that the bank's lending practices comply with all applicable laws and regulations. If a bank is found to have engaged in predatory lending practices, it can be subject to fines and legal action, which can negatively impact its loan quality control reviews.
D. Truth in Lending Act: The Truth in Lending Act (TILA) is a federal law that requires lenders to disclose the terms and conditions of a loan to borrowers, including the interest rate and any fees associated with the loan. Predatory lending practices often involve the concealment of fees or the misrepresentation of loan terms, which is a violation of TILA. If a bank is found to have violated TILA, it can be subject to fines and legal action, which can adversely affect its reputation and profitability.
In conclusion, predatory lending practices can have far-reaching and negative impacts on borrowers and the banking industry. Therefore, it is important for banks to ensure that their lending practices are fair, transparent, and comply with all applicable laws and regulations.