First published April 21, 2002:
A lawsuit against Household International filed by four Whatcom County couples appears to be gaining momentum.
Since a report on that lawsuit appeared in the April 5 issue of The Bellingham Herald, the owners of 19 other Whatcom County homes have stepped forward with similar allegations of misleading sales pitches by representatives at the Bellingham office of Household Finance Corp., a Household International subsidiary.
The homeowners contend that the sales pitches led them to take on first and second mortgages with interest rates much higher than they had been led to expect. Some of the homeowners have been forced into bankruptcy. A few are awaiting foreclosure on their homes.
Still others say that Household representatives agreed to reductions in their interest rates after they complained or threatened legal action.
Household International is a nationwide lender that last week reported record first-quarter net income of $511 million this year. The company portrays itself as a leader in protecting its customers against abuses.
In Prospect Heights, Ill., Household International spokeswoman Megan Hayden said that if the abuses described by the Whatcom County homeowners did occur, they were violations of the company's policies.
"It is absolutely against our policy to in any way to quote a rate that is different than what the true rate is," Hayden said. "I can't underscore that enough."
She said it was likely that the company would be checking out the Whatcom County complaints and would take "strong measures" if they proved valid. She declined to be more specific.
Last week, 30 people showed up at Fairhaven Park Pavilion to hear Wenatchee attorney Robert Parlette explain the lawsuit he has filed in Chelan County Superior Court against Household Finance Corp. and its parent company, Household International.
All eyes were on Parlette as he described the HFC experience reported by the four Whatcom County couples who are bringing the suit.
Parlette said the couples started out wanting a comparatively small loan or a first mortgage refinancing to pay off credit cards and other consumer debt. Then, responding to a phone conversation with a Household representative who held out the possibility of attractive interest rates, they visited the firm's Bellingham office in Sunset Square. There, Parlette said, they were talked into refinancing their first mortgages at an interest rate that was supposed to be lower than what they were already paying. They also agreed to second mortgages at rates that appeared reasonable, he said.
All eventually discovered - too late - that the actual annual rate on both loans was well above the rate they had been led to expect, Parlette said, and also higher than the rates on the mortgage loans they had refinanced.
Some borrowers also discovered that thousands of dollars had been added to the loan principal to cover credit life insurance they didn't know they were buying, Parlette said. Loan fees, sometimes called "points," added thousands more to the loan amounts and were not fully explained at closing, he added, and all of the HFC borrowers found out that hefty pre-payment penalties meant they could not afford to refinance the loans at more favorable rates for the first five years.
In many cases, Parlette said, the HFC borrowers found themselves owing more than their homes were worth.
As the attorney spoke, heads around the room nodded in agreement. Some muttered, "Yeah, Yeah."
When Parlette asked his listeners to raise their hands if the same thing had happened to them, everyone in the room raised a hand - except Washington Assistant Attorney General David Huey and his investigator. Huey said his boss, Washington Attorney General Christine Gregoire, had asked him to attend the meeting. Huey is a specialist in consumer protection law.
Huey said his agency's policy forbids him from acknowledging whether Household's lending practices are under investigation. But Parlette was not so inhibited.
"I can tell you that HFC is being looked at very closely by the state of Washington," Parlette said.
Parlette told the unhappy borrowers that his lawsuit could win compensation for them and every other HFC borrower in the state who can show evidence of being misled, if he succeeds in getting a judge to make it a class-action litigation. Even if that doesn't happen, he said there was a chance that the company would respond to their complaints by agreeing to give them rates at or near those that they believed they were promised.
"There is hope," Parlette said. "Even though this is a horrible thing, there is hope."
Complaints against Household International are not limited to Whatcom County. Last week, the King County office of the Association of Community Organizations for Reform Now, or ACORN, organized a protest in which about 20 disgruntled HFC borrowers from King County were bused to the Olympia office of the state attorney general to file complaints. They later picketed the company's offices.
In California, ACORN has filed a class-action lawsuit on behalf of that state's HFC mortgage borrowers, seeking actual and punitive damages.
In New York, the American Association of Retired Persons filed a class-action lawsuit in U.S. District Court last September against another Household International subsidiary, Beneficial Homeowner Service Corp. That lawsuit contends Beneficial "systematically and continuously targets low-income minority and/or older homeowners, unlawfully inducing those homeowners to enter into illegal and exorbitantly priced mortgage loan transactions."
In its most recent annual report, Household International tells its stockholders that it does not believe the suits have legal merit, and says it doesn't expect them to have significant impact on company profits.
Hayden noted that ACORN has been running a national campaign against Household for more than a year. She contended that ACORN's accusations and complaints almost always prove unfounded.
Lisa Donner, the director of ACORN's financial justice center in New York City, said she was aware of the suit filed by the Whatcom County homeowners and said their complaints didn't surprise her.
"I hear it all the time," she said. "Household's lending patterns are incredibly standard across the country. ¼ This is not unique to Bellingham."
State Sen. Georgia Gardner, D-Blaine, said the legislative committee she chairs will hold hearings in Olympia, Seattle and Yakima in the months ahead to gather information on the problems some Washington borrowers are reporting about HFC as well as other lenders. Existing state laws that require lenders to disclose terms to borrowers may need beefing up, she said.
Gardner said she heard many horror stories during the last session of the Legislature when new consumer lending laws were being considered.
"My phone was ringing off the hook," she said. "I had not realized how big this problem is."