First published Oct. 12, 2002:
Saying that Household International's lending practices had turned the American dream of home ownership into a "nightmare" for its borrowers, Washington Attorney General Christine Gregoire announced a record $484 million nationwide settlement with the company.
Washington consumers who were overcharged for mortgage loans from two Household subsidiaries - Household Finance Corp. or Beneficial Finance Corp. - would share up to $20.6 million of the total, Gregoire said. Dozens of Whatcom County homeowners could be eligible to get part of the settlement, although exact figures are not yet available.
Anyone who accepts a share of the settlement would have to agree not to pursue any other legal action against Household, Gregoire said.
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Forty-four states already have agreed to be part of the deal; the rest of the states can sign on by Dec. 15.
Gregoire acknowledged that even though the settlement amount is the largest in any consumer protection case in U.S. history, it probably won't come close to providing full restitution to everyone who lost money because of the deceptive and sometimes fraudulent business practices documented in an investigation report by the state Department of Financial Institutions' enforcement chief, Chuck Cross.
The state hired a financial analyst to determine how much money Household could afford to pay without going broke, Gregoire said. She argued that any attempt to gain full restitution would have meant years of court battle that could have ended with the company bankrupt.
"If we put them in financial risk, our consumers get nothing," Gregoire said. "We put them, as far as we're concerned, at the edge."
Gregoire said Household will still have to deal with private lawsuits by any individuals who choose not to take a share of the settlement.
She also said the settlement would not bar county or federal prosecutors from pursuing criminal cases against the company or its employees, but she said it would probably be difficult for a prosecutor to prove criminal intent.
The settlement also leaves Household free to pursue foreclosure actions against borrowers who have fallen behind on their mortgage payments, Gregoire said. She said Household borrowers who are facing foreclosure should contact her office.
Asked what she could do for such people, she replied, "I don't know. That doesn't mean we're not going to try."
The deal also doesn't do anything to reduce the high interest rates that many Household borrowers were misled into accepting. Gregoire said she hoped that most borrowers with punishing interest rates would be able to refinance, now that Household has agreed to drop its hefty prepayment penalties two years from the effective date of the loan.
Consumers who are willing to accept a share of the deal will likely have to wait months before they see a dime. Department of Financial Institutions Director Helen Howell issued a statement Friday saying the restitution process had yet to be developed.
"As a result, DFI is unable to inform consumers at this time whether they will or will not be included in the settlement, or whether or not they are entitled to restitution," Howell's statement said. "The agency does not expect to be able to provide such information to consumers for up to several months."
Gregoire said the delay is needed to let the state determine which consumers were harmed the most. Rather than give everyone the same amount, she said state officials have agreed that those who suffered the worst losses should receive more. She expressed hope that some restitution dollars would begin to flow by early next year.
The exact number of victims is unknown. Chuck Cross said the state will probably send notices to nearly 11,000 people across the state who got first and second mortgages with Household or Beneficial between January 1999 and Sept. 30 of this year. He said it's likely that many of those borrowers were not mistreated and thus will not be eligible for a payment.
Besides agreeing to pay up to $484 million to compensate defrauded customers, the company also agreed to a lengthy set of reforms in its business practices.
Gregoire made a point of praising Joe and Jeanie Luna of Blaine, the homeowners who hired Wenatchee attorney Bob Parlette to launch a class action lawsuit against the company while also taking their story to The Bellingham Herald. The resulting publicity encouraged many other victims of Household's abuses to report their problems to state officials, Gregoire said.
Howell said the settlement was a cooperative effort by her department, the attorney general and state Insurance Commissioner Mike Kreidler. She said the three branches of state government would continue to work together to fight abusive loan practices.
"Predatory lending harms all of us," she said. "It robs people of equity in their homes, and sometimes of their homes themselves."
Howell issued a warning to other abusive lenders.
"Our agencies are going to continue to work together, and we are coming after you," she said.
Gregoire said she hoped the package of reforms that are part of the deal would set a new standard for the industry.
"They (Household) can be a model for how this industry ought to do business," she said, adding that the company "demonstrated a willingness to acknowledge its mistakes."
While the company did not admit guilt in agreeing to the deal, Household Chairman and Chief Executive Officer William Aldinger did offer an apology in a company news release.
"For 125 years, we have set high standards for ourselves as a company, and we apologize to our valued customers for not always living up to their expectations," his statement said.