Household Finance Co. Settles Lending Case
|October 11, 2002|
By Don Thompson
Associated Press Writer
SACRAMENTO, Calif. –– Household International Inc., one of the nation's largest lenders, will pay $484 million to settle illegal lending allegations by state attorneys general and state financial regulators, California officials said Thursday evening.
The settlement includes $90 million to California. An announcement by state officials from "close to two dozen" states was planned for Friday morning in Chicago, though more states were considering joining the settlement Thursday, officials said.
Prospect Heights, Ill.-based Household International is the parent company of the Household and Beneficial finance companies.
In a statemement Friday morning, Household said it would hold a midday conference call "to discuss the resolution of certain regulatory issues."
The settlement is larger than the $215 million Citigroup Inc. agreed earlier this year to refund in order to settle federal charges of deceptive lending. That settlement was the largest in the history of the Federal Trade Commission.
For California, the company agreed to deposit $90 million in a restitution fund to be distributed by the state Department of Justice to borrowers who can prove they were overcharged by Household International on home equity and similar loans.
A spokesman for Attorney General Bill Lockyer, who heads the department, had no comment Thursday evening because of what had been intended as a nationwide embargo until Friday's announcement.
The payment will settle the company's alleged unfair business practices, officials said, which are broader allegations than the complaint the company settled with California in January. At that time, Household agreed to pay California $12 million to settle alleged violations of state lending laws and regulations.
"My administration was the first to sue Household on predatory practices last fall," Gov. Gray Davis said in a statement.
Subsequent settlements with the state of Washington and elsewhere led to the nationwide settlement, officials said.
Household refunded $3 million to California consumers and paid $9 million in penalties to the state Department of Corporations in January to settle allegations it deliberately overcharged an estimated 60,000 California customers.
That included $1.5 million Household paid in June 2001 for what the department called a "pervasive pattern of abusive lending practices."
The department had sued in Los Angeles Superior Court in November 2001, alleging Household charged excessive late fees, recording fees, repossession fees, penalties and interest payments.
Household's subsidiaries acknowledged they routinely charged $75 administration fees on small loans, exceeding the $50 state limit. State officials demanded and received the maximum penalties under state law because the company was repeating violations first reported in 1998, the department said at the time.
Household at the time said some of the problems stemmed from the parent company's acquisition of its Beneficial subsidiary, and denied the overcharges were intentional.
The allegations helped prompt a new California law this year imposing additional restrictions, as well as an $11 million predatory lending education and prevention program. The new state law limits fees, prepayment penalties, "balloon" payments and single-premium credit insurance that requires purchasers to borrow the full premium and repay it with interest.
The department estimated predatory lending costs California residents nearly $1 billion a year in excessive fees and interest rates, based on a nationwide study of banking data last year by the North Carolina-based Coalition for Responsible Lending.
Copyright: Associated Press