Judge Approves $60 Million
First Alliance Settlement

First Alliance • More Compensation for Victims • Court Approves Settlement • Company Faces $60 Million Settlement --- More information • See www.ftc.gov/famco or call the FTC at 1-877-862-0886.

September 12, 2002
A California home mortgage lender will pay $60 million to settle charges that it used deceptive tactics in making "subprime" loans to borrowers with low incomes or bad credit history.

U.S. District Court Judge David Carter's approval of the settlement concludes a four-year legal battle against First Alliance Mortgage Corp. of Irvine. The company had been accused of using misleading telemarketing pitches to reap hidden fees from borrowers who couldn't qualify for conventional loans.

The settlement is a victory for the Federal Trade Commission, six states and the AARP, the senior citizen advocacy group, and for nearly 18,000 individual borrowers in 18 states and the District of Columbia. The FTC will notify consumers who are expected to receive more than $3,000 each.

First Alliance, which has filed for bankruptcy protection, was accused of engaging in deceptive sales practices to lure consumers into taking out loans with large origination fees, or points. These fees, along with others charged by the company, often added 10 percent to 25 percent to the cost of the loan.

In some cases, First Alliance foreclosed on the homes of elderly and the poor, many of whom did not understand the terms of their loan agreements. Other borrowers believed they were getting a low fixed-rate mortgage only to discover they received an adjustable-rate loan with balloon payments and prepayment penalties.

The agreement requires the company's owners, former chief executive Brian Chisick and his wife to pay $20 million to a fund to repay consumers. The remaining $40 million will be funded from the liquidated assets of First Alliance.

Under the settlement, First Alliance and its officers do not admit breaking any law.

The consumer fund will be distributed to borrowers who obtained loans from First Alliance between Jan. 1, 1992 and March 23, 2000.

Back to the top |