HOUSEHOLD FINANCE TO PAY UP TO $484 MILLION IN SETTLEMENT WITH ATTORNEYS GENERAL IN MORTGAGE LENDING CASE

Denver—Colorado Attorney General Ken Salazar joined with 43 states plus the District of Columbia announcing today a major settlement with Household Finance to resolve charges that Household Finance engaged in deceptive real estate secured lending practices directed at thousands of consumers in Colorado and throughout the United States. Through the agreed settlement, Household Finance will revamp its real estate lending practices and pay up to $484 million to consumers nationally, approximately $8 million of which will be paid to Colorado consumers. The total restitution amount is believed to be the largest ever in a state consumer case.

The written settlement announced today between Household Finance and the States will be finalized in consent decrees to be filed in state courts by December 15, 2002. Without admitting any wrongdoing, Household Finance has agreed to a settlement which requires it:

• to pay up to $484 million in restitution to consumers nationwide;
• limit prepayment penalties on current and future mortgage loans to the first two years of the loan, unless otherwise restricted by law (Colorado law prohibits prepayment penalties on second mortgage loans.).
• limit up front points and loan origination fees to 5%;
• reform and improve disclosures to consumer borrowers; and
• prior to making the loan, ensure that new loans are suitable for the borrowers.

Household Finance has agreed to pay up to $10.2 million for costs and attorney fees.

The settlement with Household Finance follows an investigation by several attorneys general consumer offices and state banking regulators to address alleged violations of customer lending laws for misrepresenting loan terms and failing to disclose necessary loan information to borrowers. Consumers complained that Household charged far higher interest rates than promised, charged costly prepayment penalties, and misled them about credit insurance policies. The states alleged that Household’s regulatory lending practices essentially trapped thousands of consumers into costly loans.

“This landmark settlement is a major step forward in the consumer lending industry’s efforts to revamp its marketing of consumer loans,” said Attorney General Salazar. “The settlement will end objectionable lending practices and will provide a model of reform for the entire lending industry. We are pleased that Household Finance has recognized the importance of fair lending practices and is taking steps to better protect its customers.”

According to Salazar, this settlement represents a continuing effort by his office, and other state law enforcement officials to address predatory lending practices affecting thousands of consumers.

The Household Finance multi-state investigation focused on an apparent pattern of complaints from borrowers claiming to have been misled into agreeing to home loans with far different and much more expensive terms than had been promised initially. The alleged deception concerns consumer loans from January 1, 1999 to September 30, 2002. The state attorneys general and banking regulators focused on Household’s practices of failing to properly inform consumers of loan costs and insurance premiums built into their loans. The attorneys general were also concerned about the pattern of consumer complaints revealing that borrowers were led to believe they were receiving interests rates of about 7 or 8% when, in fact, they were actually charged nearly twice that rate. Borrowers also complained that they were charged prepayment penalties that were not clearly disclosed. The attorneys general alleged that Household Finance violated state consumer protection, consumer credit, and other lending laws.

Details of the settlement and the restitution process by which consumers will receive refunds will be finalized in the next several months. That process will include identification and notification of consumers who may be entitled to restitution or other relief. It is recommended that consumers ensure that Household/Beneficial have their current mailing address.

The attorneys general settlement addresses the lending practices of Household Finance Corp., Household Realty Corp., and Beneficial Finance, Corp. There are 19 Household Finance offices in Colorado making consumer loans subject to the settlement. These include 13 offices operating under the name Beneficial Mortgage Company of Colorado and 6 offices under Household Finance Corp. Household is based in Prospect Heights, Illinois.