Predatory Lending and Socially Responsible Investors

This chapter attempts to provide a simple introduction to the complex finance, law, and policy of consumer credit markets with an eye toward helping responsible investors begin to develop the ability to shun predatory lending. While no consensus exists on what lending practices are socially corrosive, responsible investors looking for opportunities in consumer financial markets have an obligation to make their best effort to identify and avoid predatory loans. This chapter first provides a brief introduction to some of the more controversial current lending practices. Next, it summarizes evidence of self‐defeating consumer borrower behavior. Then, it provides a cursory characterization of the rapidly evolving law of consumer finance. Finally, this chapter suggests several warning signs of predatory lending that can serve as a starting point for further investigation.