Training Customers to Use Their Rights

Compliance isn't enough. Consumers need help. You can help them. By helping consumers, you provide better service and make your institution more valuable to the consumer.

Predatory lending is a leading concern for consumers - and for regulators. The real predators are not financial institutions but free-lance lenders who solicit customers before customers have begun thinking about a new loan. Any consumer who begins to talk seriously with a lender who called the consumer needs to know how to evaluate the terms being offered. Without having done any research or credit shopping, the consumer has no basis for doing this. In fact, the consumer is the perfect target for the loan marketer: vulnerable and unprepared.

Consumers can best fend off these predators by knowing what questions to ask. This is where you come in. Consider arming your customers with questions to ask when the predatory lender calls. The following items are based on our actual experience with loan telemarketers and the ways they try to sell their loans.

Questions Consumers Should Be Asking Telemarketing Lenders

Ask the sales rep about the contract rate of interest and the Annual Percentage Rate ("APR"). The contract interest rate is the rate that is used to calculate the interest you pay each month. The APR includes interest and other finance charges (such as closing fees and points) that actually make the loan more expensive. The APR should be higher than the contract interest rate. But if it is a lot higher, the lender may be charging extra fees that you would not have to pay at a financial institution.

Ask the sales rep to tell you what all the settlement fees are. Points are based on a percentage of the loan amount and are usually the largest settlement fee. But other extra costs can be disguised by calling them "underwriting fee" or "document preparation fee." These can add up to hundreds or even thousands of dollars.

Ask the sales rep to tell you what amount of money you would need to close the loan. Unscrupulous lenders often conceal the fact that they will be charging high fees at closing, leaving the consumer in a trap. Try to find out in this first conversation what the lender plans to charge.

Ask what your monthly payment amount would be. The payment should be based on your principal amount and interest. Anyone calling you to sell loans should be able to calculate this for you.

Before making a decision, check current rates and terms. Many lenders who contact you do so hoping that you won't know what the current best interest rates are. They'll offer to lower your rate but may not offer the best deal. A few phone calls to financial institutions can arm you with this important rate information.

If you are refinancing the loan on your current home, you have the right to rescind. This means that you have three days to change your mind and cancel the deal. If you rescind, the lender must refund all of the costs you have paid for the loan as well as cancel the loan. Letting the lender know that you are aware of this right also lets the lender know that you are not a gullible consumer.

If the lender says s/he has a list or information that indicates you are paying too much on your mortgage, ask for specifics. Usually, this is an opening line. They may have only your name, address and phone number. Or they may have information from public sources that reveal the year in which you bought your home. If they try to avoid answering your question directly, get suspicious.

If the lender asks you what your rate or payment amount is, get suspicious. Generally, a lender who is doing this will offer you a better deal than your currently have. But it won't be the best deal. They try to capture your interest by telling you how much you can save but they don't tell you how much more you could save with a market rate loan from your bank!

Don't commit yourself without shopping around. Come into our institution and ask about the "deal" the lender is offering you. We will compare it with loan products we offer to help you determine whether the loan is a fair deal. Any other bank should be willing to do the same.

When someone calls you and offers you a "great deal" on something, be suspicious. They are probably calling so that they will get you interested and committed before you shop around. So shop before you answer. Call your bank! Most important, know about current rates and terms for all loan costs. The interest rate alone is only part of the story.