Household's predatory plea. (The Front).

HOUSEHOLD INTERNATIONAL, the parent company of Household Finance Corporation and Beneficial Finance Corporation -- two of the country's largest sub-prime mortgage lenders -- settled predatory lending charges in October, agreeing to pay a record penalty.

Household will pay $484 million

New York Attorney General Eliot Spitzer and attorneys general and banking regulators from 20 states negotiated the settlement with Household.

Under the terms of the agreement, Household will be limited to charging 5 percent in fees for making a loan for home financing, lower than the average 7.25 percent it has charged consumers.

"This landmark settlement will usher in a new era in sub-prime mortgage lending in which all consumers are treated with honesty and fairness," Spitzer says. "For far too long, the subprime market has been a feeding ground for unscrupulous lenders looking to gouge the most vulnerable consumers."

The New York attorney general's office commenced an investigation into Household's practices in September 2001 after receiving numerous complaints from consumers who had been duped into refinancing existing, often unsecured, debt with Household.

Household failed to disclose material information to consumers or misrepresented the terms of loans.

For example, Household gave consumers loan proposals that omitted taxes and closing costs that the consumers would be required to pay.

Consumers did not realize until after the closing that these costs were not included in the monthly payment amounts presented to them in the loan proposals.

In other instances, consumers who applied for a single loan received two loans, were charged closing costs and fees on both loans, and unknowingly faced interest rates on the second loan that exceeded 21 percent.

Household is one of the largest subprime lenders in the country. Subprime lenders make loans to borrowers with weak or bad credit. Many have been accused of engaging in predatory practices whereby consumers -- even those with good credit -- are targeted to borrow money on disadvantageous terms, including high interest rates, steep bank fees and payments for undisclosed insurance products.

Under terms of the settlement, Household immediately will cease engaging in practices that the states alleged were unlawful.

Household will also be required to improve its disclosures to ensure that consumers better understand the terms of their loans and the nature of their transactions.

The agreement requires Household to:

* Limit its fees for making a loan to 5 percent of the loan amount;

* Limit the extent to which it can charge points or fees for refinancing a Household loan made within the previous year (a form of loan flipping);

* Reform and improve disclosures to consumers, including providing accurate disclosure of discount fees on loans;

* Stop making more than one mortgage loan to a consumer within a 90-day period of time;

* Provide an independent loan closer, with no financial interest in the loan, to ensure that consumers understand the terms of the loan; and

* Appoint an independent monitor to oversee the implementation and enforcement of these and other provisions for a period of five years.

The settlement covers Household's residential lending practices from January 1, 1999 to the present. Household is one of the largest consumer lending companies in the country. During the three-and-a-half year period covered by the agreement, Household made more than $30 billion worth of home loans to consumers nationwide.