Predatory Lending and Community Development at Loggerheads

FINANCING LOW INCOME COMMUNITIES: MODELS, OBSTACLES, AND FUTURE DIRECTIONS, Russell Sage, 2007

Cleveland-Marshall Legal Studies Paper No. 05-105

47 Pages Posted: 21 Mar 2005 Last revised: 25 Oct 2012

See all articles by Kathleen C. Engel

Kathleen C. Engel

Suffolk University Law School

Patricia A. McCoy

Boston College Law School

Date Written: January 1, 2006

Abstract

For decades, cities have invested in decaying neighborhoods, leading to increases in home values and home equity. As a result, these neighborhoods have become ready targets for predatory lenders, who market their abusive loans to financially unsophisticated homeowners with home equity and no relationships with traditional lenders. Some borrowers lose their homes; others forsake home repairs to avoid default and foreclosure. Neighborhoods that once were stable become littered with abandoned and neglected homes, resulting in increased crime, falling home values, rising demands for social services, and lower tax revenues.

In the wake of the devastation done by predatory lenders, the question for policymakers is: what can be done? This paper seeks to answer this question. The paper opens by defining predatory lending. Next, the paper describes how the rise of securitization, deregulation of price terms, affordable lending incentives, bank closings, and historical credit discrimination together fueled the rise and institutionalization of predatory lending in the 1990s. Lastly, the paper evaluates different possible approaches to redressing predatory lending, including industry self-regulation, consumer education and counseling, Community Reinvestment Act oversight, criminal enforcement, existing private causes of action, and a suitability proposal.

Keywords: predatory lending, community development, Community Reinvestment Act

JEL Classification: G12, G28

Suggested Citation

Engel, Kathleen and McCoy, Patricia Ann, Predatory Lending and Community Development at Loggerheads (January 1, 2006). FINANCING LOW INCOME COMMUNITIES: MODELS, OBSTACLES, AND FUTURE DIRECTIONS, Russell Sage, 2007; Cleveland-Marshall Legal Studies Paper No. 05-105. Available at SSRN: https://ssrn.com/abstract=687161 or http://dx.doi.org/10.2139/ssrn.687161

Kathleen Engel (Contact Author)

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States
617-994-6831 (Phone)

HOME PAGE: http://www.law.suffolk.edu/directories/administrator.cfm?InstructorID=1111

Patricia Ann McCoy

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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