Amount of loans involved at least $2 billion
On Feb. 6, ACORN and two victims of predatory lending will file a class-action suit in California Superior Court in Alameda County accusing Household International and its subsidiaries, Household Finance Corporation of California and Beneficial California, Inc., of a wide range of fraud and misrepresentation.
The class for the suit includes all individuals who have been induced to enter into secured loan transactions in order to consolidate existing debt during the past four years. The suit requests that all such individuals be permitted to rescind their loans (restoring to them interest and fees), and that all profits gained as a result of unfair, unlawful and/or deceptive advertising practices be returned to the borrowers. The suit also asks for punitive damages. A conservative estimate places the class size in the tens of thousands of borrowers, and the amount of the loans made during the period covered by the suit at over $2 billion.
“The damage that Household’s loans have done to many families and communities is hard to overstate,” said Maude Hurd, National President of ACORN. “Families are losing their hard-earned equity, they are paying loans they cannot afford, they are losing any sense of security in their homes. Household has been ripping people off for too long, and we are filing this suit to win back some of what has been taken from California borrowers, and put an end to their abuses.”
The suit accuses Household of deliberately misleading borrowers with claims that they will save money by refinancing. It further accuses Household of trapping borrowers in overpriced loans by means of high loan-to-value ratios, prepayment penalties, and other restrictions.
Plaintiffs Julio and Irene Reyes
Two cases are detailed in the 25-page complaint being filed. One is that of Julio and Irene Reyes of Bakersfield, Calif. About three years ago, Mr. and Mrs. Reyes bought their home with a loan from another lender at a good interest rate. Shortly after buying the home, they received a live check in the mail for $5,000 from Household Finance. Two of their relatives had just been involved in a serious car accident, and Mr. Reyes took a few weeks off from his job to help with their rehabilitation. The Reyeses decided to cash the check to replace Mr. Reyes’s lost income, with the idea that they would quickly pay it off with another loan at a more reasonable interest rate.
Instead, after initially getting a secured second mortgage from Household to pay off this loan at a rate much higher than what they had been promised, Mr. and Mrs. Reyes were refinanced again and ended up owing much more on their house, and in two loans from Household, one a $129,185 first mortgage at 12.4% and a second $10,500 so-called “revolving” home loan at 23.9%.
In the process of moving from a small, unsecured loan to two secured loans worth about as much as their home, Household:
- Told the Reyes that consolidating their outstanding debts would save them money, when it would not;
- Did not disclose that the loans included up-front finance charges and interest rates substantially higher than the average interest rate on their existing debt;
- Did not disclose that these points and additional costs were added to the amount of the total debt secured against the Reyes’ home, decreasing the Reyes’ equity in their home so much that it left them unable to refinance to a more reasonable interest rate;
- Did not disclose that refinanced mortgage payments did not include the taxes or homeowners’ insurance that were included in the Reyes’ original mortgage payments;
- Did not disclose that the monthly payments projected by Household on the so-called “revolving loan” part of their loan package had an interest rate of 23.9 percent and that the loan would not completely amortize so that the Reyeses will have to make a balloon payment after 15 years;
- Did not disclose, with respect to credit life insurance sold with the first mortgage, the cost of the insurance ($5,266) or that the insurance provided protection for a limited period only (the first five years of the Reyes’ 30-year mortgage) and did not disclose that points were charged on the insurance and that the points would not be refunded when they cancelled the policy;
- Did not disclose that the loans contained prepayment penalties that further reduced the Reyes’ ability to refinance.
