Subprime lending tends to be done primarily by nondepository institutions, either finance companies or mortgage companies that are not subject to routine regulatory compliance audits and connected with regulated financial institutions. Often these loans are securitized and sold to investors such as insurance companies and pension funds. As mentioned, one distinguishes predatory lending from subprime lending by the features of the loan and, importantly, by whether the borrower understands the terms of the loan. Thus, there is no ready way to distinguish predatory from subprime lending, to identify predatory lenders, or to measure amounts. Yet most anecdotal reports or legal cases against predatory lenders have involved subprime lenders, and it is certainly logical to expect these practices to flourish in entities where regulators are remote.
Predatory lending is made possible by inadequate information.
The fundamental weakness is the desire of uneducated borrowers for cash up front, typically reflecting a need for home repairs. Couple this with a lack of understanding of complex credit terms or conditions, and a resulting bargaining imbalance will often subject borrowers to outright fraud, falsifications, and even forgery. Apart from outright fraud, however, regulators and legislators feel reluctant to outlaw potentially abusive practices if these practices have legitimacy most of the time. Many states have also attempted legislative remedies. Other federal statutes address predatory lending less directly.