FTC Cracks Down on Loan Practices

Federal regulators are cracking down on firms that offer home equity loans that consumers cannot hope to repay, ruining their finances and in some cases seizing their homes. The Federal Trade Commission will unveil today “Operation Home Inequity,” a combination of law enforcement and public education measures to combat lenders who often prey on older people who own their homes but are short of cash. The FTC will announce settlements with seven home equity lenders who have agreed to compensate borrowers or be banned from making certain loans in order to settle charges that they broke fair lending laws. The lenders to be named are in the subprime mortgage market, where people with poor credit histories are sometimes charged interest rates of 25% a year or more. FTC Chairman Robert Pitofsky said unscrupulous lenders used a mix of high interest rates, high fees and incomplete disclosure of terms to rip off borrowers. Homeowners, in some instances, thought they were paying off their loans each month, only to learn they still faced a “balloon” payment at the end of the loan.