New Jersey Attorney General Peter Harvey and Department of Banking and Insurance Commissioner Holly Bakke announced that a plan has been finalized for distributing to eligible New Jersey consumers a share of $17.7 million paid by Household International to settle New Jersey’s portion of a landmark, multi-state action against the company and its subsidiaries.
According to Harvey, more than 19,000 New Jersey borrowers who obtained real estate loans through Household Finance or Beneficial Finance between January 1, 1999 and September 30, 2002 will soon receive instructions on how to claim their share of a $17,725,210 Household settlement payment to the State. Household Finance and Beneficial are subsidiaries of Household International.
Commissioner Bakke said the payment to New Jersey is part of a record-breaking $484 million settlement agreement between Household, the 50 states and the District of Columbia that, along with reforms being implemented by the company, resolves allegations that prior Household practices violated laws pertaining to licensed lenders and consumer fraud.
Bakke noted that, as part of the settlement, Household has agreed to reportedly improve its disclosure practices so consumers have fair, accurate and non-misleading information regarding the terms of its loans. Household has also agreed to eliminate “piggyback” second mortgages, and will limit pre-payment penalties on all outstanding mortgages entered into between Jan. 1, 1999 and Sept. 30, 2002 to only the first two years of the loan.
“New Jersey’s participation in the multi-state group that negotiated the Household settlement has brought significant dollars and reforms to our residents,” Harvey said. “The lending practices involved in this case exploited many people during a time of need and, far from helping them, actually invigorated the cycle of debt. We have not only helped to eliminate these misleading practices, but also delivered significant compensation to our people.”
Bakke noted that, “We are pleased to begin the process of putting money back into the pockets of New Jersey consumers harmed by the abusive practices followed by Household. This settlement is an important milestone in the fight against abusive lenders.”
“While we are happy to bring the Household matter to a conclusion, we will continue to protect New Jersey consumers against other abusive lenders,” the Commissioner said. “We will continue with our strategy and, starting in November, will enforce the new predatory lending law statewide.”
Division of Banking Director Tillman said the multi-state settlement agreement with Household “is proof that lenders must beware of the potential litigation risks associated with abusive practices.”
“Rather than fighting new laws and potential litigation, lenders are beginning to spend time and money improving their lending practices so that consumers get the best loans possible,” Tillman said.
Household is one of the nation’s largest consumer finance companies specializing in sub-prime loans, and the $484 million national settlement is believed to be the largest ever in a state or federal consumer case.
According to Division of Consumer Affairs Director Reni Erdos, borrowers who obtained mortgage loans directly from Household or Beneficial between Jan. 1, 1999 and Sept. 30, 2002 should look in the coming days for a postcard from the designated program Administrator, advising them of their eligibility to receive a share of the settlement payment. The postcards are scheduled to be mailed on Aug. 8. Shortly thereafter, eligible New Jersey consumers will receive a letter bearing the State seal advising them of the minimum amount of the settlement payment available to them. The letter will be accompanied by a release that consumers must sign and return in order to claim their share of the settlement.
“Eligible consumers should give this letter their immediate attention,” Erdos said. “Recipients of the letter cannot claim their share of the funds unless they sign the release and return it in a prompt manner.”
Some consumers – namely those involved in more than one loan with different co-borrowers – are likely to receive more than one release form, and should sign each form if they want to receive payment in each case. The Household settlement includes more than 600 New Jersey cases in which consumers obtained multiple loans with different co-borrowers.
“We contend that some of these loans were so misrepresented, with regard to what consumers were getting and what would be due, that the borrowers had no choice but to take out a second loan,” said Harvey.
The multi-state settlement agreement with Household was finalized in December 2002. Under terms of the agreement, Household admits no wrongdoing. Household cooperated in the multi-state investigation, which began in the spring of 2002 after regulators in 19 states -including New Jersey – coordinated their efforts and began identifying a pattern of complaints from consumers who had borrowed from Household and Beneficial.
Under New Jersey’s agreement with Household, the State has received $253,000 in costs. Household has also paid $354,504 toward New Jersey’s share of a fund that will be used to pay costs related to having an Administrator handle the process of distributing a share of the settlement payment to eligible New Jersey borrowers.
Each of the 50 states has designed its own plan for distributing settlement shares, since lending practices by Household and Beneficial vary significantly from state to state.
In New Jersey, representatives of the Office of the Attorney General, the Division of Law, the Division of Consumer Affairs and the Division of Banking within the Department of Banking and Insurance were involved in creating the plan. Architects of the plan devised a formula taking into consideration the most substantial problems with Household and Beneficial lending practices in New Jersey and the degree of harm experienced by individual borrowers.
As a result of the New Jersey formula, any impacted Household or Beneficial borrower who signs the release will be eligible for a minimum of $150. According to current calculations, the average Household or Beneficial borrower will be eligible for approximately $885, while the maximum individual payment will be approximately $9,939.
Harvey explained that the letters being forwarded to eligible borrowers will quote a minimum share of the settlement payment due them. He said the actual amount paid to individual borrowers may increase, depending on the number of consumers who ultimately choose to accept the offered settlement share.
Harvey also noted that eligible consumers who sign the waiver indicating their acceptance of the settlement payment forfeit their right to pursue an individual legal action against the firm, or to join in other, related class action lawsuits against Household concerning these loans.
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