Household International and Ameriquest Pushed Too Far

The following are allegations that resulted in Household International to paying the largest predatory lending settlement in the United States. Some say the Ameriquest predatory lending settlement was modeled after the Hosuehold International settlement, although others deny that parallel.

A. Two real-estate secured loans made at or near the same date to the same consumer (“split loans”, or “loan-splitting”): Plaintiffs allege that such loans were made through unfair and deceptive means, including, but not limited to, misrepresentations or omissions concerning the number of loans, misrepresentation of the benefits of refinancing and debt consolidation with the high-cost split loans; use of the second loan as a result of the high amount of points and fees financed as part of the primary loan; and as a means to make high loan-to-value mortgage loans which had the effect of preventing borrowers from seeking to refinance with lower rate lenders.

B. Loan points and origination fees: Plaintiffs allege that Defendant failed to provide timely and adequate information to borrowers concerning the amount and purpose of the putative (define) “discount” or “buy-down” points and fees imposed on their loans, including, but not limited to, failing to provide meaningful early disclosures as required by law, 24 C.F.R. 3500.7.

C. Misrepresentation of interest rates: Plaintiffs allege that Defendant misrepresented the interest rates to be charged on loans through such means as using a “low-ball” rate purporting to be an “effective” rate or an equally deceptive term. Such misrepresentations and omissions occurred in the context of Defendant’s attempting to disguise a high-rate mortgage as a low-rate mortgage through use of (for payment of an additional fee) a bi-weekly payment plan. Defendant failed to inform consumers that accelerated principal reduction occurred through making extra payments, instead misleading consumers into thinking the savings were attributable to lower interest charges than the loans provided for. Additionally, misleading comparisons were made between rates on existing debts which applicants were considering refinancing or consolidating, and the rate(s) to be charged on Defendant’s proposed loan or loans.

D. Monthly payment amounts: Plaintiffs allege that Defendant failed to inform consumers that higher payments, rather than lower rates, were the feature of the bi-weekly payment program which would result in overall savings in finance charges. Further, in making sales presentations with respect to refinancing and debt consolidation applications, Defendant made misleading comparisons of monthly payment obligations between existing debts and the proposed new loan or loans to be made by Defendant.

E. Single premium credit and other insurance product: Plaintiffs allege that Defendant engaged in a pattern of “insurance packing,” including, but not limited to, misleading consumers as to the voluntary nature of the insurance, the price of the insurance, and the benefits and/or term of the insurance.

F. Prepayment penalties: Plaintiffs allege that Defendant engaged in a practice of misleading consumers about the presence of prepayment penalties on their loans, and imposed prepayment penalties in violation of state law.

G. Unsolicited loans offered through an unsolicited negotiable check that the consumer can accept by endorsing and depositing or transferring the check (“live checks”): Plaintiffs allege that Defendant used “live checks” as a “bait” to make high-cost mortgage loans; used misleading representations; and failed to adequately inform consumers that the unsolicited check was a loan.

H. Practices with regard to home equity lines of credit: Plaintiffs allege that Defendant extended what was in substance closed-end credit disguised as open-end credit with the intent to avoid making meaningful disclosures concerning the payment terms, such as the existence of large balloon payments. Plaintiffs further allege that Defendant extended what was in substance closed-end credit with APRs in excess of 10% over the US treasury rate for comparable maturities, which Defendant disguised as open-end credit to evade the requirements of the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639.

I. Loan billing practices relating to simple interest calculations: Plaintiffs allege that Defendant’s practices by which payments were credited to accounts on the basis of the number of days between payments frequently resulted in situations in which scheduled payments were insufficient to pay accrued interest, creating a shortfall in interest (“interest short”), which resulted in excess finance charge costs for borrowers. Such shortfalls could occur even when payments were not late. Defendant further made representations concerning the opportunity to “skip a payment” without informing consumers that doing so would result in “interest short” situations. Defendant failed to provide borrowers with material information necessary to avoid such extra charges.

J. Balloon payments: Plaintiffs allege that Defendant extended credit to borrowers on terms that would eventually require balloon payments, without disclosing to borrowers the existence or amount of the balloon payments.

K. Payoff information: Plaintiffs allege that Defendant failed to provide timely payoff information, which impeded borrowers’ efforts to seek refinancing elsewhere.

L. Non English language documentation: Plaintiffs allege that Defendant engaged in unfair and deceptive practices by failing to provide meaningful descriptions of loan terms to non-English-speaking borrowers.

M. Net tangible benefit in loan refinancing: Plaintiffs allege that Defendant engaged in the practice of refinancing its own or other loans, thereby imposing additional fees and costs, where the new loan provided no net tangible benefit to the consumer.

(data courtesy of Household – HSBC Watch – HSBC bought Household International.)

We should point out that many think the allegations of 2002 became publically accepted practices by 2005 – 2006, leading up to the mortgage crisis of 2007. Clearly all of the practices were not adopted. What changed were the mortgages themselves.