Coventry Enterprises of America Guide to Predatory Lending in 2026

Predatory lending refers to lending practices that impose unfair or abusive terms on borrowers. These practices target vulnerable populations, including low-income borrowers, elderly homeowners, and people with poor credit who have limited alternatives. Coventry Enterprises of America documents the most common predatory tactics here so borrowers can recognize them.

High and Hidden Fees

One of the clearest signs of a predatory loan is a fee structure that is excessive compared to market rates or that is obscured rather than disclosed clearly. Origination fees above 3 percent of the loan amount, prepayment penalties that trap borrowers in the loan, and yield spread premiums that pay brokers more for steering borrowers into higher-rate loans are all red flags.

Always ask for the full fee schedule in writing before you agree to anything. Then compare the APR quoted to you with average rates for your credit profile from multiple sources. A rate significantly above market for your credit score and loan type is the most reliable signal that you are being overcharged.

Balloon Payments

A balloon payment is a large lump sum due at the end of a loan term. Some short-term loans are structured with five or seven years of regular payments followed by a balloon payment that equals most or all of the original loan balance. Borrowers who cannot pay the balloon must either sell the property, refinance into a new loan (often at the same lender's terms), or default.

Predatory lenders use balloon structures intentionally. They know that many borrowers cannot pay the balloon, which forces a refinance and generates new fees. This tactic, sometimes called loan flipping, extracts fees repeatedly without ever helping the borrower build equity or pay down debt.

Equity Stripping

Equity stripping targets homeowners who have built up significant equity in their property. A predatory lender convinces the homeowner to borrow against that equity, often through a home equity loan or cash-out refinance, under terms that make it difficult or impossible to repay. When the borrower defaults, the lender forecloses and takes the equity.

Elderly homeowners are particularly vulnerable to equity stripping schemes because many have paid down their mortgages substantially and live on fixed incomes. Any unsolicited contact from a lender encouraging you to tap your home equity should be treated with significant skepticism.

Loan Packing

Loan packing involves adding unnecessary or undisclosed products to a loan at closing. These include single-premium credit life insurance, accident insurance, or other products that get rolled into the loan principal and earn interest for the full loan term. Borrowers often do not realize these products have been added until they review the Closing Disclosure carefully.

Always review every line item on the Closing Disclosure. If a product appears that was not on your Loan Estimate and you did not request it, ask for it to be removed before you sign.