Federal Agency Cracks Down on a Predatory Lending Practice That Often Hurts Somali Muslims

For years, Fartun Weli has been frustrated with the way low-income Somali Muslims in Minnesota have been targeted by shady home sellers edging their way into the community — by exploiting a principle of Islam meant to protect the poor.

Weli says many are refugee immigrants who know little about the formal homebuying process and often have little or bad credit. Even when they qualify for traditional mortgages, they’re uncomfortable with the typical financing options because Islamic law forbids interest on loans.

In comes a private seller who offers them seemingly low-priced homes without interest. In such sales, the two sides agree on a price outright, with a sizeable down payment and monthly installments. The seller claims there’s no interest payment because no banks are involved. But no banks also mean no appraisals, allowing the seller to inflate prices with no questions asked on the condition of the home.

Typically, the seller legally owns the home until the entire loan is paid off and all the seller’s conditions are met, while the buyer takes on ownership responsibilities like paying the property taxes, fixing it up to livable standards and all ongoing maintenance.

“This is a community that has been scammed,” said Weli, who leads Isuroon, a community nonprofit that supports Somali refugee immigrant women and their families resettling in Minnesota. “There are so many of them that just folded quietly. Most of our families are not even talking about it.”

The Consumer Financial Protection Bureau is now pledging to scrutinize bad deals in this format, known as contracts for deed. It is also urging people to report such deceptive and predatory loans.

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In the case of Somali Muslims in Minnesota, the contracts for deed hold appeal because mainstream Islamic law views the concept of paying or receiving money as interest on a loan as a greedy sin, said Yasir Qadhi, an Islamic scholar and chair of the Fiqh Council of North America.

“We believe interest is an unfair tool, that people who have wealth can leverage their wealth as a means of becoming more wealthy by taking advantage of the poor,” Qadhi said. “In our faith, giving someone a loan is an act of charity, it’s not a business.”

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