Household International agreed to pay
up to $484 million in damages to its customers
after settling a case involving 45
states, including Nevada.
The suit brought by the states' attorneys
general alleged that the mortgage
lender misrepresented loan terms and
failed to disclose material information to
borrowers. The case covered loans issued
by the Prospect, Ill., company between
January 1999 and September 2002. The
settlement was announced Oct. 11.
"This settlement is significant, not
only for the monetary relief it will provide
consumers, but also because it sets
new national standards for lending practices
in the subprime market," said
Frankie Sue Del Papa, Nevada attorney
general, in a prepared statement. "Abuses
by the home lending industry, especially
by those businesses that target consumers
with credit difficulties, have been
and will continue to be a priority for
consumer protection advocates."
Some of the terms of the settlement
include: limiting prepayment penalties,
limiting points and origination fees to a
total of 5 percent; and improving outreach
communications to Hispanic
consumers.
Nevada consumers represented less
than 1 percent of Household's affected
customers, but that is still hundreds of
borrowers, according to Tom Sargent,
spokesman for the state attorney general's
office. Those consumers were also
disproportionately affected, said Sargent,
representing a larger percentage of the
actual damages.
Sargent said the terms of the award,
including the amount and how it will be
distributed, are still to be determined. In
the meantime, Nevada consumers who
think they may have been affected can
write to the Financial Institutions
Division of the Nevada Department of
Business and Industry in Las Vegas.
Household's practices are just one
example of predatory lending, a problem
that always gets worse in lean times.
"Any time there is any kind of economic
stress you see a proliferation of
anything as simple as advanced fee
schemes," said Scott Walshaw, commissioner,
Nevada Department of Business
and Industry. An advanced fee scheme,
he said, is when a business or individual
promises to secure a borrower a
loan for a fee required in advance. The
fee is delivered, but the loan never is.
"There is no definition of predatory
lending," said Mark Kruger, deputy
attorney general in Carson City. "It covers
a broad scope but most people think
of it as it relates to real property. But it
can also be payday lending and that's
where you get the huge interest rates."
According to the state's attorney general
office, forms of predatory lending
include:
* Packing: loading a loan with various
costs, including insurance and fees;
* Flipping or churning: a lender persuades
a borrower to take one loan
to pay off another, and the lender
profits from prepayment penalties
and new fees;
* Unaffordable loans: loaning money
based on assets rather than income or
ability to pay;
* Overt fraud: a lender lies to consumer
about the terms of the loan.
Nevada has no usury laws, which
cover predatory lending, said Kruger.
That's because, in part, consumers with
bad credit usually have no other option
for borrowing than paying higher interest
rates. And it is difficult for lawmakers
to delineate between high, but reasonable,
rates and predatory ones.
