Attorney General Ken Salazar Announces Distribution of $8.6 Million To Colorado Household Finance and Beneficial Borrowers

Denver—Attorney General Ken Salazar announced today that settlement payment checks totaling $8,662,695 are being mailed to 5,306 Colorado consumers with mortgage loans from Household and Beneficial Finance. This represents a major portion of the December 2002 consent judgment which resolved the Attorney General’s lawsuit against Household International and its related companies.

"I am pleased that we are now distributing over $8.6 million dollars in settlement payments to thousands of Colorado consumers," Attorney General Salazar said. "Consumers are receiving monetary benefits from the settlement and also benefit from the implementation by Household and Beneficial of new and more fair lending practices."

Eligible Colorado consumers were contacted in August 2003 and had until mid-October 2003 to return signed releases in order to participate in the settlement. Release forms were mailed to 6,397 Colorado consumers and 83% of them signed and returned valid releases. Colorado’s initial share of the settlement money was $8.5 million but it increased from interest earned on the funds.

Colorado’s settlement payment plan was based upon three criteria. Borrowers with mortgage loans closed at Household or Beneficial retail offices from January 1, 1999 through September 30, 2002, whether open or paid off, and who paid one or more of the following were eligible for settlement payments: up-front points that exceeded 5 percent; prepayment penalties after the second year of the loan; and premiums for credit life or disability insurance (and who did not receive a refund or insurance claim payment). The size of each borrower’s settlement payment was based upon on the presence and amount of these loan factors, as well as the amount of the borrower’s loan. Each state established its own settlement distribution plan to compensate borrowers. State distribution plans varied depending on state law and the pattern of complaints each state

In addition to the settlement payments, Household implemented a number of consumer protection practices that are providing a model for the entire lending industry. Household’s compliance with the consent judgment is being rigorously monitored. It cooperated with state authorities nationwide to facilitate the efficient implementation of the agreement and the distribution of restitution funds.

The settlement payments and lending reforms resulted from the landmark consumer protection agreement between Household International and the attorneys general and consumer credit regulators of all 50 states and the District of Columbia. Household International, through its subsidiaries Household Finance and Beneficial, is one of the nation’s largest sub prime mortgage lenders. The settlement resolved an investigation by the states into allegations that Household violated consumer protection and consumer lending laws. The states alleged that Household overcharged borrowers with excessive fees and interest and misled borrowers about other loan terms such as prepayment penalties and credit insurance. Household denied any wrongdoing but it consented to entry of judgments against it in each state.

Under the consent judgments, which were entered in December 2002, Household International agreed to pay $484 million dollars to the States to be distributed to as many as 300,000 borrowers.

As part of the settlement, Household and Beneficial agreed to injunctions in all 50 states that restrict it from charging prepayment penalties on current and future mortgage loans after the first two years of the loan unless prohibited by state law, loan "flipping," charging more than 5 up-front points and origination fees, and selling single-premium credit insurance.

In other provisions of the Consent Judgments, Household and Beneficial agreed to:

• notify borrowers with open loans that it would not charge prepayment penalties after the first two years of the loan despite the terms of its prior loan agreements. (Colorado law prohibits prepayment penalties on junior lien mortgage loans and first mortgage loans for purposes other than home acquisition or refinance if the rate exceeds 12% APR);
• stop selling or financing single premium credit insurance;
• not make oral or written misrepresentations about the actual interest rates and annual percentage rates and avoid use of the terms “effective” and “blended” rate;
• accurately and non-deceptively describe any accelerated payment plans;
• stop making second mortgage loans within 90 days of making first mortgage refinance loans to borrowers;
• permit borrowers to cancel and terminate open-end home equity lines of credit at any time;
• offer the lowest interest rate available for which a borrower’s credit qualifies;
• certify that certain offices have a Spanish-speaking employee and provide Spanish language loan documents;
• provide timely payoff quotes within 5 business days of the borrower’s written request;
• reform and improve loan disclosures; and
• ensure that any new loans made are suitable for the borrowers.

Household has 37 licensed locations in Colorado including 13 operating as Beneficial Colorado, Inc., 13 operating as Beneficial Mortgage Company of Colorado, and 11 operating as Household Finance Corporation. Household is based in Prospect Heights, Illinois and is a wholly owned subsidiary of HSBC Holdings plc.

Household and Beneficial borrowers with questions about the settlement payment procedures can contact the settlement administrator toll free at 1 888 780 2156 or view more information at www.household-beneficial-settlement.com. Information is also available at the Colorado Attorney General’s web site at www.ago.state.co.us.