By Tom Kelly of Inmam News
“It’s just not good enough.” That’s what many consumers around the country say about the whopping $484 million settlement reached between Illinois-based Household International and the attorneys general in all 50 states to settle several pending lawsuits involving alleged predatory lending practices. While the settlement checks could soon be in the mail, the relief they bring will be only temporary in some cases. That’s because the amount received will not make the difference between the original loan amount and the additional debt incurred by the new loans, fees and services piled on via “predatory” methods.
Most of these consumers are now faced with a “Catch 22” situation – if they accept the settlement, they must waive the right to file additional claims against Household or its partner, Beneficial Finance Corp. For example, the estimated 11,000 consumers in Washington State involved in the national settlement are expected to receive between $1,800 and $6,000 apiece – far less than needed to reach their equity stake before the loans were originated.
In addition, some potential lawsuits failed to gain class-action status, leaving some borrowers to fight the predatory lending charges by themselves in separate and independent actions. Many- especially seniors in retirement – do not have the means to continue the battle and could be facing foreclosure and bankruptcy. One of several attorneys choosing to the individual route is Montgomery, Alabama-based Tom Methvin who has signed up a growing list of 1,800 consumers in more than two years of working actions aimed at Beneficial.
“The despicable part of all of this is that these lenders go after a lot of older people who don’t often understand what they are getting into,” Methvin said. “They seek the most vulnerable individuals because they know they stand the best chance of deceiving them.” Methvin’s team tells its clients up front that if they have accepted payment in the national settlement (each state was allotted a specific amount) that they are not eligible for additional relief.
“Borrowers really need to read the fine print,” Methvin said. “Most of the documents now call for arbitration instead of litigation. If they sign on the bottom line, they give up the right of ever bringing a lawsuit against the lender. The problem is some of the arbitrators are too friendly with the lender’s side and the consumer doesn’t get a fair shake.”
Attorneys say “flipping loans” was one of several popular avenues Household Finance Corp. and Beneficial Finance Corp. used to lure thousands of borrowers into refinancing their homes at higher-than-market rates and fees. Sometimes, the lender would start this flipping chain of expensive refinancing by sending a “live” check in the mail in an attempt to get consumers to pay outstanding bills from the proceeds of the check.
Once the check was endorsed, consumers were on the hook for high-interest rate loans that were subsequently refinanced, or “flipped,” into a longer-term loan. All transactions carried fees usually financed into the balance, thereby creating a debt load significantly greater than the combined amounts of the loans. Another wrinkle to the “flip” was promoted as a “debt reduction loan.” The lender often would offer a credit-poor borrower a higher-than-market rate to consolidate the first mortgage and outstanding consumer (credit card) debt, stating the borrower could not qualify for a better rate because of a blemished credit history.
Later in the process, the lender would surface and inform the borrower that the house did not appraise at an amount large enough to justify the loan. The lender would then grant the borrower a second mortgage – sometimes at an interest rate greater than 20 percent. According to some state investigators, the amount on the second mortgage was the exact amount of the lender’s points and fees of the first mortgage. The lenders were simply making the borrower pay fees by taking out a second mortgage with wrenching terms.
Insurance is key to older folks and it also has been a big part of the predatory picture. According to claims against Beneficial in Mississippi and Alabama, insurance coverages were “packed” on to mortgage applications, leading consumers to believe the insurance was necessary to close the loan. The pitches included the need for collateral protection insurance, credit life insurance, credit accident and health insurance, accidental death and dismemberment insurance, involuntary unemployment insurance and property insurance.
Do business with a lender that you know or trust. When in doubt, ask friends and business associates. Be leery of unwanted solicitations boasting new ways to get you into a favorable financial position. The old saying – not classified as ancient – still is true: if the deal sounds too good to be true, it probably is.