Abusive Lending Schemes

There are two main types of abusive lending schemes that laws seek to regulate, namely predatory lending and usury. These types of lending schemes can be present whether one is obtaining a personal or commercial loan. The first type involves a false show of generosity where the lender grants loans to the borrower until the latter is placed at a completely helpless situation against the lender such that the lender is free to raise interests or take the borrower’s properties in as payment of the loan. Such kinds of lenders are sometimes referred to as loan sharks.

Usury, on the other hand, is one where the lender charges interests that are excessive. Before laws were passed regulating this lending abuse scheme, opportunistic lenders would charge usurious interest rates until the borrower loses all his properties and become even poorer than when the loan was first obtained. Today, some countries have passed legislations regulating imposition of interest rates on loans granted by both private individual lenders as well as banks. In some jurisdictions the imposition of extremely high interest rates may not be prohibited by any law but the same may be questioned in courts as being unconscionable or “shocking to the senses.”

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