Atlanta under seige by predatory lenders
Clark Howard, WSB-TV consumer adviser
If you're considering a home equity loan, be careful. Atlanta is under seige by predatory lenders looking to steal your equity, and in turn, take your home.
Atlanta homeowner Fred Wood had mounting bills and horrible credit, and he found help from a home equity lender. "I had gotten sick, and I couldn't work for several months, and I got behind on my bills," says Fred. "It really put me in a bind."
Fred's first loan was small -- $567. But the interest rate was huge -- 32 percent! A home loan should average about eight percent. What followed was a series of additional small home loans and huge interest rates. If Fred couldn't make the payments, they would roll it into another loan. After 10 loans, Fred was offered a debt consolidation loan of $36,000. With interest and fees, Fred's $36,000 loan ended up costing him over $98,000.
Here's how it happens. Let's say you borrow $5 from a friend. Then he charges you $5 interest, another $3 for credit insurance, another $3 for life insurance, and another $2 for random other fees. Your $5 loan will now cost you $18. And the loan companies will make these loans regardless of your credit history.
Attorney Howard Rothbloom represents 2000 Georgians in a class action lawsuit. Fred Wood was victim #1. "His credit wasn't good enough to get a credit card at KMart, but they loaned him $36,000 secured by his house," says Rothbloom. "If this company did at the point of a gun what they do with the point of a pen, there would be a lot of people in prison."
State Senator Vincent Fort is ready to do something to stop predatory lending. Says Senator Fort, "For a predatory lender to come in and rip off somebody and take their home, is just about un-Amercian." Senator Fort has seen predatory lenders invade his district, and he's taking legislative action. He's introducing a bill called the Georgia Fair Lending Act, aimed at regulating credit life insurance, huge balloon payments and early payoff penalties. Says Fort, "We want to focus on the bad lenders, a small minority. But this small minority of lenders wreaks pure havoc in our communities."
As for Fred Wood, his debt is way too much to repay. He's still in his home, relying on his faith in God and his faith in his attorney. "If it wasn't for Howard, I'd be in the streets right now," says Fred.
Georgia is not the first state to try and regulate this business. North Carolina successfully put a predatory lending law into effect last year. It's time for Georgia to do the same.
