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News in March 2002

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    First Alliance Mortgage Faces $60 Million Settlement

    WASHINGTON, March 21, 2002 -- A California home mortgage lender faces as much as $60 million in consumer redress payments to nearly 18,000 borrowers under a proposed lawsuit settlement.

    The settlement with First Alliance Mortgage Company was announced today by the Federal Trade Commission; the states of Arizona, California, Florida, Illinois, Massachusetts, and New York; AARP; and private attorneys for class action plaintiffs and for individual plaintiffs with unfair lending claims. The settlement must be approved by a federal district court in Santa Ana, California.

    The agreement settles charges that First Alliance and its chief executive officer violated federal and state laws in making home mortgage loans to customers.

    The settlement creates a consumer redress fund that will include all of the remaining assets of First Alliance and its affiliates, now being liquidated in bankruptcy court, as well as a payment of $20 million from Brian Chisick and his wife, Sarah Chisick. The settlement amount is one of the largest consumer protection recoveries in FTC history.

    First Alliance, headquartered in Irvine, California, offered home loans, usually secured by first mortgages. The company targeted its loans to the "subprime" market, which includes homeowners with poor credit ratings who may not be able to qualify for conventional loans.

    The FTC sued First Alliance and the Chisicks in October 2000. In May 2001, the federal district court consolidated the FTC's October 2000 complaint with complaints that were previously filed by the states, AARP, and the private parties.

    The complaints allege that First Alliance marketed its loans through a sophisticated campaign of telemarketing and direct mail solicitations. Consumers who visited First Alliance's loan offices in response to the solicitation were subjected to a lengthy sales presentation known as the "Track."

    According to these complaints, First Alliance's solicitations and the "Track" presentation misled consumers about the existence and amount of loan origination fees (commonly known as "points") and other fees that First Alliance charged - which typically amounted to 10 to 25 percent of the loan.

    Consumers also were allegedly misled about increases in the interest rate and the amount of monthly payments on adjustable rate mortgage (ARM) loans that the company offered. Additionally, the complaints allege that First Alliance violated the federal Truth-in-Lending Act by failing to provide consumers obtaining ARM loans with a required booklet explaining how these loans worked.

    The proposed settlement includes the establishment of a redress fund to be distributed to borrowers who obtained First Alliance loans from 1992 through March 23, 2000, and who have not previously settled with First Alliance. The fund will include all of the assets in First Alliance's bankruptcy estate (after payments to certain creditors), $20 million from the Chisicks, $1 million from the insurers of the trusts that currently hold the loans, and at least $3 million from certain insurance policies.

    The settlement would also preserve lawsuits currently pending against Lehman Brothers and other financiers of First Alliance that have been brought by certain private plaintiffs. It would include a 10-year ban preventing Brian and Sarah Chisick from engaging in the residential mortgage loan origination business in Arizona, Massachusetts, and New York; and a permanent ban preventing Brian and Sarah Chisick from engaging in the residential mortgage loan origination business in California, Florida, and Illinois.

    Several conditions must be met before the settlement becomes effective and money can be distributed to consumers. These conditions include the court's approving both the settlement and the bankruptcy liquidation plan that First Alliance will be filing. Once the conditions are met and the settlement is approved, the FTC will administer the redress fund and will notify consumers of any actions they must take to receive redress. Pursuant to the settlement of the class action lawsuit, consumers will be receiving a notice explaining the settlement agreement in more detail and what actions consumers should take to ensure receipt of their redress.

    First Alliance Mortgage Faces $60 Million Settlement in Case Brought by FTC, States and AARP...

    Wonder Bread Ads Disputed

    Prof. Wonder Sent Packing

    WASHINGTON, March 6, 2002 -- Have you been wondering whether Wonder Bread really helps kids' mental development, as recent ads have claimed?

    The Federal Trade Commission (FTC) didn't think so, and now Interstate Bakeries Corp. has agreed to find another line of work for Professor Wonder, the fictional scholar featured in advertisements produced by Campbell Mithun LLC.

    The way Prof. Wonder explained it, Wonder Bread was a good source of calcium and, therefore, it should help children's minds work better and retain information longer. The FTC charged that there was no scientific evidence to support the claim.

    The proposed settlements announced today for public comment would prohibit both IBC and Campbell from claiming that any bread product, or any of its ingredients, helps brain function or memory, or can treat, cure or prevent any disease or related health condition, unless they have reliable scientific substantiation for the claims. The orders would allow the respondents to make representations specifically permitted by the Food and Drug Administration.

    Wonder Bread Ads Disputed...

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