Though the Truth in Lending Act ("TILA") was not necessarily aimed at predatory lending--I don't think the phrase "predatory lending" had even been coined when TILA was enacted--its disclosure rules should theoretically have prevented predatory lending to the extent predatory lending is based on consumer ignorance. Consequently, the question of why predatory lending survives, if not thrives, despite the TILA disclosure requirements is worth exploring. My co-blogger, Chris Peterson, in his book Taming the Sharks: Towards a Cure for the High-Cost Credit Market 291 (2004) addressed this question, concluding that TILA is "a collective lie.” See also Gian Ho & Anthony Pennington-Cross, The Impact of Local Predatory Lending Laws 7 (Fed. Reserve Bank of St; Louis Working Paper 2005-049B 2005) (“If borrowers actually read all the documents required by law at the time of closing it would take all day. Moreover, many of the documents are written in a manner that is difficult for non-lawyers to understand. . . . [T]he seller, buyer, and/or refinancer rely on the representations and interpretations of closing agents. . . . This makes it possible for unscrupulous agents to take advantage of that information gap.”). The remarkable testimony of the pseudonymous “Jim Dough," a former employee of a predatory lender, before a hearing of the Senate Special Committee on Aging on March 16, 1998, titled “Equity Predators: Stripping, Flipping and Packing Their Way to Profits,” about the tactics he used to persuade consumers to agree to onerous loan terms also sheds light on the issue.
Now Loyola of LA Professor Lauren E. Willis, in a lengthy but important article Decisionmaking and the Limits of Disclosure: The Problem of Predatory Lending: Price, 65 Maryland Law Review 707 (2006), brings behavioral economics to bear on the problem. A sample: