Dear Penny: Is My Wife a Predatory Lender?

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Dear Penny,

My wife lent money to a friend. I assumed we would accept the loss if it weren’t repaid, but my wife had other ideas. It turns out that the friend's small business is collateral, with the stipulation that the borrower could become an employee if the business were taken.

The borrower has made payments, but not always on schedule, and apparently the entire amount is now due immediately.

My wife is preparing to claim the business, which she believes she can run better than her friend does. Incredibly, she doesn't think this will harm their friendship.

Apparently, my wife was once sued by her own mother. She said they remained close throughout, and it was a good learning experience. She showed me photos of herself and her mother together, both dressed businesslike, from the day she faced her in court. I’d like to ask my wife's parents about this, although I’d rather not mention how it came up.

Back to the current situation: Is a court likely to enforce this? Might my wife be penalized for crafting what could be construed as predatory terms?

The contract appears to be notarized, and I wonder whether the notary considered this. I cannot give exact details of the contract, as I am not likely to have it in front of me while alone.

Dear M.,

I don’t care how beautifully your wife handled it when she was sued by her own mother. I highly doubt her friend will react to being sued by happily posing for a courtroom selfie. I can’t imagine what their working relationship would look like after that.

Let’s put aside the legality of this agreement for a second here. Your wife crafted an agreement that you believe is predatory to take advantage of her friend. Regardless of whether it’s legal, you don’t think it’s right. You have an obligation to speak up here.

I asked Justin Meyer, an Orlando-based attorney who practices business law whether the loan you describe could be construed as predatory, bearing in mind that we don’t know what state you’re in. Here’s what he had to say:

“I would worry about what the interest rate is,” Meyer said. “Without knowing more about the situation, I can’t say if it is predatory or not. It is also important to note that each state defines predatory lending differently. However, most states view predatory lending as a consumer issue, not a business issue and if this can be deemed a business loan, then there are generally fewer protections.”

According to Meyer, if your wife made the loan knowing her friend couldn’t afford to repay it, that could be illegal, depending on the state and what the loan was used for. But it is legal to use a business itself as collateral, even though it’s more common to use business assets, like real estate or inventory. Based on the limited information you present, Meyer thinks this does sound like an enforceable agreement.

But the notary had no role in making sure this was a fair or enforceable contract. “The notary is not responsible for the text of the document, only for ensuring that the people are who they say they are,” Meyer said.

So where does this leave you? It doesn’t sound like you know all the terms of the agreement. So I’d suggest you and your wife sit down with an attorney to review exactly what’s in that contract. That’s assuming, of course, that your wife is willing. She’s been less than upfront with you, so this isn’t a given.

It’s striking all the things you haven’t talked about. You knew your wife was lending money, but you assumed the two of you would eat the loss if necessary. Meanwhile, your wife was plotting to take over her friend’s business. It sounds like it was only after you learned of her plan that she mentioned that her mother once sued her. That seems like a pretty significant event — one that you would have mentioned to your spouse.

I don’t know of a graceful way you can ask your mother-in-law about the time she sued her daughter, but I’m curious what you’re hoping to find out here. It sounds like you have a nagging suspicion that your wife isn’t trustworthy. Are you hoping your inlaws’ explanation will quash that suspicion?

Past lawsuit aside, if you believe this loan was predatory, you need to make that case to your wife. Just because something is legal, that doesn’t make it right. Ask your wife about her intentions. Is it to get repaid? Is it to become a business owner? Whatever the goal, can she achieve it without suing her friend and taking over her business?

You may not win this one. But pay attention if your wife doesn’t want to discuss details. Sometimes the more we conceal, the more we reveal. If your wife doesn’t want you to know the terms of this contract, your bigger problem is all the other things you don’t know about your wife.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].