Three alleged victims of predatory lending have filed a national class-action suit in the Circuit Court of Cook County, Ill., accusing Household International and its subsidiaries, Household Finance Corporation and Beneficial Corporation, of a wide range of fraud and misrepresentation.
The suit accuses Household of deliberately misleading borrowers about the terms and conditions of their loans, including high rates and fees, principal amounts which exceed the actual value of their homes, and prepayment penalties that effectively trap borrowers in overpriced loans.
Wall Street shrugged off the suit against Household, the nation's largest lender to consumers with poor credit. Analysts noted the company has taken action recently to prevent lending abuses.
The class for the suit includes all borrowers induced to enter into secured loans to consolidate existing debt, an estimated 175,000 persons. It asks for rescission of the loans -- restoring interest paid and fees to the borrowers -- as well as for actual and punitive damages. Household made more than $45 billion worth of secured loans in the past three years.
"Household has made a practice of making loans which hurt families and communities all across the country," said Maude Hurd, National President of ACORN, a homeowners group. "Household has stripped families of their major form of wealth - the equity in their homes - by targeting vulnerable people, deceiving them about the real costs and consequences of their loans, and trapping them in loans with high rates and high payments."
On Feb. 6, ACORN and two victims of predatory lending filed a similar class-action suit covering borrowers only in the State of California.
Among the borrowers named in the suit are Murelin and James Bell of Chicago. Murelin works as a teacher's aide and James is retired. Murelin received a live check in the mail from Household during a period when James went into the hospital for triple-bypass heart surgery. They needed money to pay the bills, and she cashed it. Household then consolidated this small, unsecured loan with the Bells' existing mortgage and other consumer debt into a secured loan for $98,508.43.
In promoting the benefits of loan consolidation to the Bells, Household allegedly:
- Told the Bells that consolidating their outstanding debts would save them money, when it would not;
- Did not disclose that the loan included up-front finance charges of more than 7% of the loan amount, or that the APR on the new loan was 12%;
- Did not disclose, with respect to credit life insurance sold with the loan, either the cost of the insurance or that the insurance provided protection for a limited period only (the first five years of the Bells' 20-year mortgage), and did not disclose that points were charged on the insurance and that the points would not be refunded if they cancelled the policy;
- Did not disclose that up front points and fees and the credit insurance costs were added to the amount of the total debt secured against the Bells' home, significantly decreasing the Bells' equity in their home.
On Jan. 10, Household agreed to pay $12 million to settle California regulators' allegations that Household deliberately overcharged tens of thousands of customers. On April 23, the 7th U.S. Circuit Court of Appeals in Chicago reversed a $25 million settlement of a class-action suit against Household and H&R; Block. The decision removed a legal shield that had protected Household and Block from allegations they illegally gouged customers by providing "refund anticipation loans" at interest rates frequently exceeding 100 percent. Household and Block could face damages of up to $2 billion in Texas alone, the appeals court said.