Household International to repay borrowers
By Martha McNeil Hamilton
Washington Post
Household International Inc., the nation's leading lender to consumers with poor credit histories, agreed yesterday to repay tens of thousands of borrowers up to $484 million to settle charges that the company tricked customers into paying too much for mortgages and insurance. The company also agreed to change some of its lending practices.
Bloomberg News Service
The settlement — the largest ever in a state or federal consumer case — came as part of an agreement by attorneys general and financial institution regulators in 19 states and the District of Columbia.
Household International, Inc. has agreed to repay borrowers up to $484 million to settle charges that it misled customers into paying too much for mortgages and insurance.
Ultimately the settlement may include all 50 states, said William Aldinger, chairman of Household, which owns Household Finance Corp. and Beneficial Finance Corp. He said the company agreed to the settlement "to get this behind us quickly."
The settlement was the latest development in an ongoing effort to improve consumer protection for borrowers who are often required to pay more for loans because of their checkered credit history. Many such borrowers are poor, elderly or minority.
Last month Citigroup Inc. reached a $215 million agreement with the Federal Trade Commission to settle similar allegations against Associates First Capital Corp., which Citigroup acquired in 2000.
Iowa Attorney General Tom Miller, the lead attorney general involved in crafting the Household settlement, said he hoped the agreement would be "a turning point in lending to low- and moderate-income Americans when there is a home at stake."
According to the multi-state investigation, consumers were misled about interest rates and other costs, including the cost of insurance. For instance, a borrower might have been misled into believing that he or she was required to have credit insurance; then the charges for the insurance would be included in the loan, resulting in higher costs.
In some cases borrowers actually lost their homes as a result, the state attorneys general and financial regulators said. According to Maryland Attorney General Joseph Curran, whose office participated in the settlement talks, borrowers will receive an estimated $1,400 each from the settlement. Exactly how much each borrower gets will depend on how many consumers are found to have claims.
Household's Aldinger said he hoped the agreement would "create a groundbreaking model for consumer protections, provide redress to customers who have complaints about their loan and will establish a national framework that allows us to move forward and build upon the consumer protection measure we've put into place in recent years."
Aldinger said most of the loans in question were made in 1999 and 2000. He also said he believes the settlement will defuse a number of class-action suits pending against Household. Under the agreement, consumers would have to sign a release promising not to sue the company if they accepted the settlement.
Aldinger said the company has held discussions with states that were not part of Friday's settlement and that he expects most of them will be added.
Household had already announced it was changing some of the practices covered by the agreement, including dropping the practice of charging borrowers a single, lump-sum premium for credit insurance at the time the loan is made and making it part of the loan.
Other changes included in the agreement include limiting prepayment penalties on current and future home loans to the first two, rather than the first three, years of the loan and limiting the points and origination fees on loans to 5 percent.
