"Predatory lending," has become shorthand for describing a variety
of lending practices that may be disadvantageous to borrowers. Abusive or predatory
lending - whether undertaken by creditors, mortgage brokers or home improvement
contractors - may involve fraud or deception, manipulating borrowers through
aggressive sales tactics or taking unfair advantage of a borrower's lack of
understanding about loan terms. These practices occur most frequently in the subprime lending market and target lower-income and minority borrowers.
The term "predatory lending" covers a potentially broad range of
behavior and does not lend itself to a concise or comprehensive definition.
However, predatory lending typically involves at least one, and perhaps all
three of the following elements:
- making unaffordable loans based on the assets of the borrower, rather than
on the borrower's ability to repay an obligation ("asset-based lending")
- inducing a borrower to refinance a loan repeatedly in order to charge high
points and fees each time the loan is refinanced ("loan
- engaging in fraud or deception to conceal the true nature of the loan obligation
from an unsuspecting or unsophisticated borrower
In light of the importance of the issues
and concerns that precipitated the Department's request for advice from
the Attorney General regarding the New Jersey Home Ownership Security Act,
N.J.S.A. 46:10B-22 et seq. and the general interest in the advice received,
the Department has elected to waive its attorney-client privilege and publicly
release this advice in this particular instance. Please be advised, however,
that releases of such advice are exceptions, done only in extraordinary
cases. Consequently, the posting of this advice should not be considered
as indicative of a pattern or practice of the Department.
It is also necessary that readers of the advice understand
that the role of the Division of Law in this matter is to advise the Department
of Banking and Insurance, not to answer questions regarding the advice
from the industry or the general public. Therefore, please submit all
inquiries regarding the advice and the Act to the Department of Banking
and Insurance through any of the many available channels of communication,
and not to the Division of Law.