Predatory Practices

PREDATORY PRACTICES are forms of unfair competition. In consumer markets, they mostly involve exploiting the public's lack of information about products, often financial products such as home loans or credit terms, thereby obtaining unjustifiable fees and unfair contractual conditions. In business markets, predatory practices involve attempts by one company to use its market power or influence to take advantage of a smaller company or companies. Making a large order from a small company and then not making payments so that the supplier is forced into bankruptcy is one example of a predatory practice.

In consumer markets, predatory practices most commonly focus on the attempt to exploit people's lack of information about lending practices, thereby obtaining more money from them. This includes such practices as flipping, which involves causing customers to renegotiate loan details repeatedly, possibly in a short period of time, while charging high fees on each occasion. Another practice is asset-stripping, which is making loans based on equity in a property rather than the loanee's ability to repay the loan. This is designed to lead to default on behalf of the customer and the transfer of the property (or other asset) to the lending company. Packing involves adding supplementary costs such as credit insurance to a loan, which therefore increases its value without the informed consent of the loanee.

Many of these practices are not in themselves illegal; it is possible and quite common for a lender and loanee to renegotiate the terms of a loan, for example. However, predatory practitioners take advantage of those people unable to provide informed consent. Vulnerable groups include the elderly, those for whom the language of the agreement is not the native language and those with a legal status that prevents them from taking full recourse of the protection of the law.

This last category includes migrant workers who may have documents or agreements that, with or without their knowledge, are not wholly legal. Such people may be forced to meet additional payments to job agents or else required to participate in occupations they would not wish to take or live in conditions they would not have considered suitable. An additional segment of this market is the issuing of loans to people in high risk categories, because of poor credit records or borrowing defaults. Loans made to this group attract very high fees.

Owing to the huge expansion of personal debt in recent years associated with the growth in credit card usage, the Federal Trade Commission has estimated that this practice resulted in loans to the value of $56 billion in 2000 alone. The expansion of credit card usage in Korea and Japan has already led to massive personal indebtedness for many people who have then become vulnerable to debt collectors who may require them to undertake tasks or jobs they would not wish to undertake.

The growth of the internet and the penetration of e-mail throughout all sections of developed societies has provided opportunities for unscrupulous lenders to identify potential victims at a relatively low cost. People responding to advertisements likely to lead to such practices are added to others matching profiles believed likely to lead to high levels of vulnerability on so-called sucker lists which may be traded among unscrupulous lenders for high prices.

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