MARYLAND SETTLES WITH HOUSEHOLD FINANCE,
MD CONSUMERS TO RECEIVE OVER $12.8 MILLION

Attorney General J. Joseph Curran, Jr., announced today that he and the Commissioner of Financial Regulation have formally entered into a settlement with Household Finance Corp. through a consent judgment filed Monday in Baltimore City Circuit Court. Household will pay a total of $484 million in consumer restitution nationwide--the largest direct restitution amount ever in a state or federal consumer case.

"Household will change its lending practices under the settlement," Curran said, "and it will pay Maryland consumers over $12.8 million in restitution for alleged unfair and deceptive lending practices in the subprime lending market."

The states had alleged that Household violated state laws by misrepresenting loan terms and failing to disclose material information to borrowers. The investigation focused on real estate-secured loans. Consumers complained that Household charged far higher interest rates than promised, charged costly prepayment penalties, and deceived consumers about insurance policies. Some consumers were trapped in costly loans by some of the practices, the states alleged.

Household cooperated in the case when the states presented their concerns. In addition to restitution, Household agreed in the settlement to numerous injunctive terms. Household will:

• Ensure that new home loans actually provide a benefit to consumers prior to making the loans.
• Limit up-front points and origination fees to 5 percent.
• Reform and improve disclosures to consumers.
• Eliminate "piggyback" second mortgages.

Consumers do not need to contact the Attorney General or Commissioner of Financial Regulation at this time. Consumers who may be entitled to restitution will be identified from Household’s records and contacted.

However, consumers who have moved and who had real estate-secured loans with Household during the period in question (January 1, 1999, through September 30, 2002) may wish to contact Curran’s office at 410-576-6574 to provide a current address.
Curran has long been outspoken on the issue of predatory lending, utilizing public service announcements and town hall meetings to educate Marylanders about the practice. Earlier this year, Curran’s Consumer Protection Division ordered four men (all real estate lenders, appraisers or sellers) and their five companies to pay over $2 million to consumers it had misled and/or deceived in connection with numerous real estate transactions.

"Our position on predatory lending practices is that they are detrimental to consumers and undermine the integrity of the marketplace," said Maryland Commissioner of Financial Regulation Mary Louise Preis. "The settlement agreement will not only provide monetary relief to Maryland consumers, but we hope it will cause responsible lenders to re-examine their consumer lending practices to determine whether or not they are treating consumers fairly. In the end, this will benefit all consumers."

The tentative settlement was announced October 11, but the settlement and restitution amount were contingent on settlement by Monday with states representing at least 80 percent of the dollar volume of Household's real estate-secured loans. Consent judgments are being filed by Monday's deadline in all fifty states and the District of Columbia, which means Household will pay the maximum restitution amount of $484 million.

The settlement will not be affected by the acquisition of Household Finance by HSBC, the giant banking and financial services company headquartered in London. The States' settlement with Household is binding on any successor company that might acquire Household’s retail branch mortgage lending operations.

"I sincerely hope that this settlement will provide momentum for improving the industry. Our Consumer Protection Division will continue to work with the Department of Financial Regulation and other law enforcement agencies to make the fight against questionable practices in the lending industry a high priority," Curran said.

#