State attorneys general and financial regulators cooperated in the
multi-state investigation. They alleged that Household violated state
laws by misrepresenting loan terms and failing to disclose material
information to borrowers. Consumers complained that Household charged
far higher interest rates than promised, charged costly prepayment
penalties, or deceived consumers about insurance policies. Some consumers
were trapped in costly loans by some of the practices, the states
State officials said
Household cooperated in the case when the states presented their concerns.
The company worked quickly with the multi-state group, over a period of
about four months, to develop and negotiate solutions to the practices
identified by the states. Household heard the message of the states and
moved to a settlement that will provide a model for the industry, state
The settlement includes Household International, Inc. (the parent company),
Household Finance Corp., Beneficial Finance Corp., and Household Realty
Corp. Household is based in Prospect Heights, Illinois.
State officials said the settlement provides nationwide relief to consumers
and addresses practices in the lending industry that have been and will
continue to be a priority effort for state consumer protection and financial
Under the settlement, consumers could receive up to $484 million in total
restitution, depending on how many states participate.Thousands of consumers
took out real estate loans with Household since 1999, the year the states
allege the problem practices began.The agreement will take effect when
states representing 80 percent of Household real estate business agree
to it. Officials from at least 34 states already have indicated they support
the framework of the settlement spelled out in the Agreement in Principle
Iowa Attorney General Tom Miller, New York State Superintendent of Banks
Elizabeth McCaul, Washington State Attorney General Christine O. Gregoire,
and North Carolina Attorney General Roy Cooper led the final negotiations
resulting in the settlement.
Miller is the lead attorney general in the Household case and is chair
of the Subprime Lending Committee of the National Association of Attorneys
General (NAAG). Cooper is chair of the Consumer Protection Committee of
NAAG. McCaul is the immediate past chairman of the conference of state
bank supervisors and is the lead financial regulator for the case.
The working group of assistant attorneys general and financial regulators
was coordinated by Assistant Attorney General Sandra Kane of Arizona.Primary
investigative work upon which the case was based was done by the financial
regulatory departments and attorney general offices of the states of Washington,
New York, Minnesota, and Idaho.
Chicago News Conference:
Illinois Attorney General Jim Ryan hosted a news conference in Chicago
Friday announcing the landmark agreement, along with Miller, Cooper, McCaul,
Georgia Banking Commissioner David Sorrell, and Gregoire, who spoke by
telephone from Washington.
"Owning a home to raise your family in is at the core of the American
Dream," said Illinois Attorney General Ryan. "But because of the alleged
deceptive practices in this case, many consumers found that dream turning
into a financial nightmare. The states involved are working together to
protect our nation's families."
McCaul, the New York Superintendent of Banks, said: "A major blow to
predatory lending practices nationwide has been struck by this settlement.
No longer will consumers be deceived and ill-informed when mortgaging
their homes. Household's actions will not be tolerated. This unprecedented
settlement of up to $484 million clearly sends a message to all who would
take advantage of consumers. I am proud that all restitution will be returned
directly to consumers. It is also gratifying that state banking regulators
and state attorneys general have worked together to achieve this historic
Miller said the landmark settlement resulted from a crucial and unique
partnership between state financial regulators and state attorney generals.
"Someday, I hope we will look back on this as a turning point in lending
to low and moderate income Americans when there is a home at stake," he
said. "The settlement is unprecedented both in its amount and in the reform
contained in the restrictions it places on questionable lending practices
in the future. It is our intention that other lenders will have to live
with the same reforms that are spelled out in this settlement."
The States' Investigation and Allegations:
Officials from 19 states and the District of Columbia began coordinating
their efforts early this year after identifying a pattern of complaints
from borrowers who said they had been misled into agreeing to home loans
with far different and much more expensive terms than had been promised.
Other states have joined the effort.
The multi-state investigation alleged that Household violated numerous
provisions of state consumer fraud acts and financial regulations by misrepresenting
loan terms and failing to disclose material information to borrowers.
In many of the cases, borrowers' monthly payments jumped dramatically,
and some consumers were put at risk of losing or did lose their homes.
Many consumers said Household charged interest rates far higher than
promised, and charged costly points and prepayment penalties, which were
misrepresented. They also complained of deception about insurance policies.The
amount of loan fees were often misrepresented or not explained at all.
In many cases, borrowers were unaware they were charged the high fees.
Investigators contend that, when Household marketed its "E-Z pay" plan,
consumers made loan payments every two weeks instead of once a month.
Such payment schedules reduce the total amount of interest paid over the
life of a loan, because consumers make the equivalent of 13 monthly payments
each year, but investigators allege Household misrepresented those savings
as lower interest rates.
In many cases, regulators claim, Household failed to properly inform
consumers of loan costs and insurance premiums that were included in their
loans. In other instances, borrowers who were led to believe they were
receiving interest rates of about seven or eight percent were actually
charged nearly twice that much. Borrowers also complained that they were
charged costly prepayment penalties that were not clearly disclosed to
Under the settlement, Household agreed to:
- Pay up to $484 million in restitution to consumers nationwide, depending
on how many states participate.
- Limit prepayment penalties on current and future home loans to only
the first two years of a loan.
- Ensure that new home loans actually provide a benefit to consumers
prior to making the loans.
- Limit up-front points and origination fees to 5%.
- Reform and improve disclosures to consumers.
- Reimburse states to cover the costs of the investigations into Household's
- Eliminate "piggyback" second mortgages.
The written Agreement in Principle announced today between Household
and the States will be contained in consent decrees to be presented to
state courts throughout the country before the end of the year.
Each state will design its own restitution plan, since some of the lending
practices varied significantly from state to state.The details of the
settlement and the process by which consumers can apply for restitution
are being finalized and will be announced at a later date.
Consumers do NOT need to contact state attorney general or financial
regulator offices at this time. Restitution plans for each state will
be formulated, and then states and a settlement administrator will inform
consumers about restitution terms and procedures under the settlement.
State officials said the settlement specifies that the restitution fund
could range from $387.5 million up to $484 million, depending on how many
states participate. All states are eligible to take part. State officials
expect almost all states to participate and that the restitution total
will be at or close to the $484 million level. Each state's share of the
restitution fund will be proportional to the state's percentage share
of Household's total real estate loan secured dollar volume.
Attorney General and/or financial regulator officials from nineteen states
plus DC began coordinating their work several months ago: AZ, CA, CT,
FL, ID, IL, IA, MA, MI, MN, NC, NJ, NM, NY, OH, TX, VT, WA, WI, and the
District of Columbia.
State Attorney Generals or state financial regulators (or both) in at
least 44 states plus DC already have indicated they support the framework
of the Agreement in Principle: AK, AZ, CA, CO, CT, DE, FL, GA, HI, ID,
IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MT, NE, NV, NH, NJ, NM,
NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, UT, VT, VA, WA, WV, WI and DC.
(State Attorney Generals from 42 states and the District of Columbia,
and financial regulatory agencies from 37 states support the settlement.)
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