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Wednesday, April 23, 2014

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Circular Letters

Circular Letter 5607

October 15, 2003

To: All Member Banks and Others Concerned in the Third Federal Reserve District

Attention: Chief Executive Officer and Chief Compliance Officer

Subject: CONSUMER BROCHURE ON PREDATORY LENDINGS

Summary:

The Board of Governors of the Federal Reserve System and other federal government agencies that are members of the Interagency Task Force on Fair Lending have jointly published a new brochure that alerts consumers to potential borrowing pitfalls, including high-cost home loans, and provides tips for getting the best financing deal possible. The brochure, Putting Your Home on the Loan Line Is Risky Business, warns that regardless of whether a home equity loan is for a home repair, bill consolidation, or some other purpose, it is important to shop around.


Borrowing from an unscrupulous lender, especially one that offers a high-cost loan using the home as security, could result in the loss of the borrower’s home and his or her money. The brochure cautions that certain lenders-often called “predatory lenders”-target homeowners with low incomes or credit problems, including the elderly, by deceiving them about loan terms or giving them loans they cannot afford to repay. Before signing the credit contract, consumers are encouraged to

  • Think about their financing options
  • Do their homework
  • Think twice before they sign a loan contract
  • Know that they have rights under the law

The brochure notes that many consumers may have other options for meeting their financial needs besides taking out a home equity loan. Housing counseling and social service programs are available to assist people with financial problems.

If consumers decide that a loan is right for them, the brochure suggests talking with several lenders; comparison shopping for interest rates, payments, term of the loan, points and fees, and other costs of the loan; and having a knowledgeable friend, attorney, or housing counselor review the loan documents. A shopping checklist is included with the brochure.

The publication also reminds consumers that if they are refinancing or using their home as security for a home equity loan (or for a second mortgage loan or a line of credit), federal law gives them three business days after signing the loan papers to cancel the deal. The cancellation must be submitted in writing, after which the lender is required to return any money the consumer has paid to date. If the three-day period has already passed and consumers believe they have been misled, the brochure suggests that they contact a state or local bar association, a local consumer protection agency, or a local fair housing or housing counseling agency.

The brochure is available on the Board's website External Link and from Publications, Stop 127, Federal Reserve Board, 20th & C Streets, N.W., Washington, D.C. 20551. A PDF (Portable Document Format) version is provided on the web site so that consumer groups, financial institutions, agencies, and other organizations can download and print copies for distribution to their clients and customers. It includes a space on the back panel for organizations to provide their own contact information. A Spanish-language version of the publication will be available in the future.

For Further Information: The media contact for the Board is Susan Stawick at (202) 452-2955. For print copies of the brochure, you may contact Jeri Cohen at (215) 574-6458.