I think my wife is a predatory lender

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Dear Penny,

My wife loaned money to a friend. I figured we’d accept the loss if it wasn’t paid back, but my wife had other ideas. It turns out that the friend’s small business is a security with the condition that the borrower could become an employee if the business were taken over.

The borrower made payments, but not always on time, and apparently the full amount is now due immediately.

My wife is preparing to claim the business. She believes she can walk better than her friend. Incredible, she doesn’t think this will harm their friendship.

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

Back to the current situation: is a court likely to enforce this? Could my wife be punished for inventing what could be construed as predatory terms?

The contract appears to be notarized and I wonder if the notary considered this. I cannot give any precise details about the contract as I probably do not have it alone in front of me.
-M.

Dear M.,

I don’t care how well your wife handled it when she was sued by her own mother. I very much doubt her friend will respond to a lawsuit by happily posing as a courtroom selfie. I can’t imagine what their working relationship would be like after that.

Here, let’s put the legality of this agreement aside for a second. Your wife has made an arrangement that you believe is predatory to take advantage of your friend. Regardless of whether it’s legal, don’t think it’s right. You are obliged to express yourself here.

I asked Justin Meyer, an Orlando-based attorney who practices business law, if the loan you described could be construed as predatory as we don’t know what your condition is. Here’s what he had to say:

“I would be concerned about how much the interest rate is,” Meyer said. “Without knowing more about the situation, I can’t tell if it’s predatory or not. It’s also important to note that each state defines predatory lending differently. Most states, however, view pirated credit as a consumer problem rather than a business problem. If this can be viewed as a business loan, there are generally fewer safeguards in place. “

According to Meyer, it could be illegal for your wife to grant the loan knowing that her friend cannot afford to pay it back, depending on the state and the purpose of the loan. However, it is legal to use a company itself as collateral, although it is more common to use company assets such as real estate or inventory. Given the limited information you present, Meyer believes this sounds like an enforceable agreement.

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

Where are you? It doesn’t sound like you know all of the terms of the agreement. So I would suggest that you and your wife sit down with a lawyer to review exactly what is in this contract. This of course assumes that your wife is ready. She was less open with you, so that’s not a given.

It strikes you what you haven’t talked about yet. You knew your wife was loaning money, but you figured the two of you would eat the loss if necessary. In the meantime, your wife planned to take over her friend’s business. It sounds like she mentioned only after you learned of her plan 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 how you can gracefully ask your mother-in-law about the time she sued her daughter, but I’m curious what you want to find out here. It sounds like you have nagging suspicions that your wife is untrustworthy. Do you hope your parents-in-law’s statement will undo this suspicion?

Previous litigation aside, if you believe this loan was predatory you must present it to your wife. Just because something is legal doesn’t make it right. Ask your wife about her intentions. Should it be 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 cannot win this one. But be careful if your wife doesn’t want to discuss details. Sometimes the more we hide, the more we reveal. If your wife doesn’t want you to know the terms of this contract, your bigger problem is all of the other things you don’t know about your wife.

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

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