Missouri files settlement with Household Finance Corp.

The Missouri Department of Economic Development announced Dec. 26 that the state has formally entered into a settlement with Household Finance Corp. through a consent judgment filed Dec. 16 in the Circuit Court of Cole County. Household, one of the largest consumer credit lenders in the world, has been in dispute with several states over alleged deceptive lending practices.

"Household will change its lending practices under the settlement," said Joseph L. Driskill, Department of Economic Development director. "The company will pay Missouri consumers more than $13 million in restitution for alleged unfair and deceptive lending practices in the subprime lending market."

Driskill said details on restitution procedures and eligibility will be announced in the next few months.

Household will pay a total of $484 million in consumer restitution nationwide, Driskill said. State officials said that is the largest direct restitution amount ever in a state or federal consumer case.

The tentative settlement was announced Oct. 11, but the settlement and restitution amount were contingent on settlement by the December deadline, with states representing at least 80 percent of the dollar volume of Household's real estate-secured loans.

Driskill said consent judgments were filed in all 50 states and the District of Columbia, which means Household will pay the maximum restitution amount of $484 million.

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.

State officials said 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:

limit prepayment penalties on current and future home loans to only the first two years of a loan;

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; and

eliminate "piggyback" second mortgages.

Driskill said each state will design its own consumer-restitution plan, since some of the lending practices varied significantly from state to state.

He said a settlement administrator will be selected shortly, and information on restitution terms and procedures will be sent to consumers in the next few months. Consumers do not need to contact state offices at this time.

However, Driskill said, consumers who have moved and who made real estate-secured loans with Household from Jan. 1, 1999 through Sept. 30, 2002 may wish to notify the office of the Missouri Division of Finance at PO Box 716, Jefferson City, MO 65102 to provide a current address.

Each state's share of the restitution fund will be proportional to that state's percentage share of Household's total U.S. real estate loan-secured dollar volume.