WASHINGTON, July 18, 2000 -- Nu West, Inc., a Bellevue, Washington-based lender, and company owner Georg Frey, have agreed to settle Federal Trade Commission charges that they violated federal law when making high-cost loans to consumers that were secured by their homes.

According to the FTC, "subprime" lenders generally extend credit to higher-risk consumers and charge significantly higher rates and fees than lenders charge borrowers who obtain "prime" loans. The FTC's complaint alleges that the defendants violated the Home Ownership and Equity Protection Act (HOEPA) by failing to disclose to consumers material costs of the loans and other information at least three days before the closing; by including prohibited balloon payments and increased interest rate provisions in the notes, and by making direct payments to home improvement contractors.

The settlement prohibits the defendants from violating any provisions of HOEPA, the Truth In Lending Act and the FTC Act and would require them to pay more than $160,000 in consumer redress.

"Deceptive lending tactics, like hiding essential information from borrowers, puts home ownership and home equity at risk," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Consumers put their hopes and dreams into their homes, and laws like HOEPA are on the books to protect them."

HOEPA provides special protections for consumers in certain refinancings with high-cost loans secured by their homes. In loans covered by HOEPA, the lender must give the borrower certain disclosures in writing at least three business days before closing. This information includes a notice that the consumer could lose his home and any money put into it if he does not meet his obligations under the loan.

The notice also requires disclosure of the annual percentage rate, amount of payments and, if applicable, certain variable rate information. The law also bans from high-rate, high-fee loans such terms as balloon payments due in less than five years, increasing the interest rate at default, and most prepayment penalties. Lenders also are prohibited from engaging in a pattern or practice of lending based on home equity without regard to consumers' ability to repay loans ("asset-based lending") and making direct payments to home improvement contractors. Other provisions require disclosure of key credit terms and give consumers three days to rescind after they sign loan documents.

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