Attorney General Ken Salazar Announces Plan to Pay $8.5 Million to Colorado Household Finance and Beneficial Borrowers

Denver—Attorney General Ken Salazar announced today that Colorado consumers with mortgage loans from Household or Beneficial Finance will soon be able to claim settlement payments. Letters will be sent to over six thousand Colorado borrowers on approximately August 15, 2003 notifying them of their eligibility to share in the State’s $8.5 million dollar settlement with Household International and its related companies.

The letters will advise borrowers of their minimum settlement payment amount and include release forms to sign and return to the settlement administrator. The deadline for borrowers to return signed releases is October 14, 2003. Settlement payments will be mailed to borrowers by check in December 2003.

"We were pleased to negotiate a strong settlement with Household and Beneficial and that thousands of Colorado consumers will be receiving payments under the settlement," Attorney General Ken Salazar said. “This landmark case was a major step forward in the consumer lending industry’s efforts to revamp its marketing of consumer loans. Household recognized the importance of fair lending practices and is taking steps to better protect its customers.

Each state established its own settlement distribution plan to compensate borrowers. State distribution plans may vary depending on state law and the pattern of complaints received.

Colorado’s settlement payment plan is based upon three criteria. Borrowers with mortgage loans from 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 are 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 payment depends on the presence and amount of these loan factors, as well as the amount of the borrower’s loan.

As part of the agreement, Household is implementing a number of new consumer protection practices that are providing a model of reform for the entire lending industry. Household's implementation program includes rigorous outside monitoring of Household's compliance with the terms of last year's settlement. Household is cooperating with state authorities nationwide to facilitate the efficient implementation of the agreement and the distribution of restitution funds.

The settlement payments result 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 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 also agreed to implement a series of reforms in their lending operations. Injunctions obtained in all 50 states restrict prepayment penalties on current and future mortgage loans to the first two years of the loan unless prohibited by state law, prohibit loan "flipping," limit up-front points and origination fees to no more than 5 points, prohibit the sale of single-premium credit insurance, and improve loan disclosures.

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 disclosures; and
• ensure that any new loans made are suitable for the borrowers.

Household has 44 offices in Colorado including 17 operating as Beneficial Colorado, Inc., 16 operating as Beneficial Mortgage Company of Colorado, and 11 operating as Household Finance Corporation. Household is based in Prospect Heights, Illinois.

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.