SD Files Settlement with Household Finance
(Pierre) – Attorney General-Elect Larry Long said Monday that South Dakota has formally entered into a settlement with Household Finance Corp. through a consent judgment filed December 13 in Pierre.
“Household will change its lending practices under the settlement,” said Long, “and will pay South Dakota consumers $867,540 in restitution for alleged unfair and deceptive lending practices in the subprime lending market.” Long said details on restitution procedures and eligibility will be announced early next year.
Household will pay a total of $484 million in consumer restitution nationwide, said Long. The $484 million payment is the largest direct restitution amount ever in a state or federal consumer case. A tentative settlement was announced October 11, contingent on settlement by today with states representing at least 80% of the dollar volume of Household’s real estate-secured loans.
The states alleged that Household violated state laws by misrepresenting loan terms and by 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, the states alleged.
Household cooperated in the case when states presented their concerns. In addition to restitution, Household agreed in the settlement to numerous injunctive terms: - 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%. - Reform and improve disclosures to consumers. - Eliminate “piggyback” second mortgages.
Long said South Dakota will design its own consumer-restitution plan, since some of the lending practices varied significantly from state to state. Long 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 the South Dakota Attorney General's Office at this time.
However, Long said, consumers who have moved and who had real estate-secured loans with Household during the period in question (Jan. 1,1999, through Sept. 30, 2002) may wish to contact Long’s office to provide a current address.
Each state’s share of the restitution fund will be proportional to the state’s percentage share of Household’s total U.S. real estate loan secured dollar volume.
Director of Banking Dick Duncan and Director of Insurance Darla L. Lyon also participated in the settlement.
Long said State officials think the Household settlement will provide a model for the industry. Long said questionable practices in the lending industry will continue to be a priority for our office.