Subprime lender to pay millions in damages

Household International agreed to pay

up to $484 million in damages to its customers

after settling a case involving 45

states, including Nevada.

The suit brought by the states' attorneys

general alleged that the mortgage

lender misrepresented loan terms and

failed to disclose material information to

borrowers. The case covered loans issued

by the Prospect, Ill., company between

January 1999 and September 2002. The

settlement was announced Oct. 11.

"This settlement is significant, not

only for the monetary relief it will provide

consumers, but also because it sets

new national standards for lending practices

in the subprime market," said

Frankie Sue Del Papa, Nevada attorney

general, in a prepared statement. "Abuses

by the home lending industry, especially

by those businesses that target consumers

with credit difficulties, have been

and will continue to be a priority for

consumer protection advocates."

Some of the terms of the settlement

include: limiting prepayment penalties,

limiting points and origination fees to a

total of 5 percent; and improving outreach

communications to Hispanic

consumers.

Nevada consumers represented less

than 1 percent of Household's affected

customers, but that is still hundreds of

borrowers, according to Tom Sargent,

spokesman for the state attorney general's

office. Those consumers were also

disproportionately affected, said Sargent,

representing a larger percentage of the

actual damages.

Sargent said the terms of the award,

including the amount and how it will be

distributed, are still to be determined. In

the meantime, Nevada consumers who

think they may have been affected can

write to the Financial Institutions

Division of the Nevada Department of

Business and Industry in Las Vegas.

Household's practices are just one

example of predatory lending, a problem

that always gets worse in lean times.

"Any time there is any kind of economic

stress you see a proliferation of

anything as simple as advanced fee

schemes," said Scott Walshaw, commissioner,

Nevada Department of Business

and Industry. An advanced fee scheme,

he said, is when a business or individual

promises to secure a borrower a

loan for a fee required in advance. The

fee is delivered, but the loan never is.

"There is no definition of predatory

lending," said Mark Kruger, deputy

attorney general in Carson City. "It covers

a broad scope but most people think

of it as it relates to real property. But it

can also be payday lending and that's

where you get the huge interest rates."

According to the state's attorney general

office, forms of predatory lending

include:

* Packing: loading a loan with various

costs, including insurance and fees;

* Flipping or churning: a lender persuades

a borrower to take one loan

to pay off another, and the lender

profits from prepayment penalties

and new fees;

* Unaffordable loans: loaning money

based on assets rather than income or

ability to pay;

* Overt fraud: a lender lies to consumer

about the terms of the loan.

Nevada has no usury laws, which

cover predatory lending, said Kruger.

That's because, in part, consumers with

bad credit usually have no other option

for borrowing than paying higher interest

rates. And it is difficult for lawmakers

to delineate between high, but reasonable,

rates and predatory ones.