Loans

There are all kinds of loans: commercial loans, home equity loans, pay day loans, signature loans, pawn shop loans, auto loans, mortgages and many more.

Scams

So many types of transactions create lots of opportunities for scams. A key warning sign is if the lender asks you to pay them a fee before the loan funds. This is called an advance fee loan and it is illegal. Scammers requiring an advance fee often take the fee and disappear.

Another warning sign that you are dealing with a scammer is if they ask you to pay them using a wire transfer instead of using the mail. This allows them to circumvent mail fraud.

Many con artists work under company names that are similar or identical to legitimate lenders. For instance our office filed suit against an unscrupulous company which called itself City Mortgage Services. City Mortgage had no affiliation with Citibank or CitiMortgage. Because all lenders will require you to provide personal sensitive information, you need to be careful yours is legitimate. Otherwise you could become a victim of identity theft.

Unscrupulous lenders usually prey on people with poor credit. Beware of loans advertising low interest rates and guaranteed approval regardless of poor credit or bankruptcy. If you are considering a debt consolidation loan, or are attempting to borrow money in spite of poor credit history, contact the National Foundation for Credit Counseling or the Consumer Credit Counseling Service agency in your area.

Usury

Usury refers to the charging of an exorbitant interest rate on a loan. Texas state laws specify maximum legal interest rates for certain loans like commercial loans.

Commercial loans are made primarily for the operation of a business or for investment, agriculture or similar ventures. Commercial loans are authorized by Chapter 306 of the Texas Finance Code and can not bear more than 18 percent of interest annually although the loan may float with inflation to 24 percent. Commercial loans exceeding $250,000 can bear up to 28 percent.

Usury rates for other types of loans can vary drastically. The law that governs financing of motor vehicle sales caps the effective annual interest at 27 percent. Pawn shop loans can be 240% annually.

Consumer loans are made primarily for personal, family or household use. Consumer loans are authorized by Chapter 342 of the Texas Finance Code. Interest rates vary depending upon the type of loan and the amount borrowed.

The Office of the Consumer Credit Commissioner (OCCC) sets the maximum interest rate according to the guidelines set by state laws for many types of loans including rates for credit cards, pawn shop transactions and rent-to-own purchases. Contact the OCCC for current rates.

Complaints

In Texas many types of loans are regulated by the OCCC. If your complaint is against a lender the OCCC does not oversee, the Texas Department of Banking may be able to direct you to who does. File complaints with the regulator who oversees your lender, and with our office.

Co-Signing a Loan

If you co-sign a loan for someone, you are responsible for the loan if the borrower does not pay. In fact federal law requires the creditor to provide you with a notice explaining that you must guarantee the debt. Therefore if the borrower does not make the payments, you are fully liable for the debt, just as if you had taken out the loan.

This means you will have to pay all the money that is owed including late fees and interest. You could also lose any assets you used to secure the loan. If the loan is in default and the creditor sues to collect, you could even be responsible for attorney fees.

Further if the creditor turns it over to a collection agency, the collector can pursue you by all legal means to collect the debt.

Finally, a cosigned loan could affect your ability to borrow. Other lenders will consider your co-signed loan as part of your total debt load if you apply for another loan.

If you co-sign for a loan ask the lender to notify you if the borrower misses a payment. Also keep important documents such as the loan contract and the Truth-in-Lending Disclosure Statement. You may have to obtain copies of these papers from the borrower as the lender may not be required to give you these papers.

 

Revised: May 06 2010