Tennessee Aquarium, Chattanooga
Several very large settlements have been reached by government agencies, nonprofit organizations, and individuals that have alleged predatory practices by subprime lenders and servicers. They are:
· GMAC: $41.1 million. GMAC-Residential Funding Corp. and two other lending institutions agreed to pay $41.1million to settle a federal court class-action lawsuit involving predatory lending practices. The suit involved about 44,000 people from eight states. In the settlement agreement, which was finalized in the U.S. District Court in Pittsburgh, the defendants agreed to pay $33 million to the plaintiffs and $8.1million in attorneys' fees. Plaintiffs were from Georgia, Illinois, Maryland, Missouri, North Carolina, South Carolina, Texas and Virginia.
The lawsuit alleged two Florida and Virginia banks used a direct-mail campaign promising second-mortgage loans at 125 percent of the value of home equity, then inflated loan-origination fees, closing fees and other costs normally associated with mortgages. Court documents show plaintiffs will receive from $552 to $925 each as reimbursement for excessive loan costs. The amount paid by each defendant was not released, but a Tallahassee, Florida newspaper reported that GMAC-Residential would pay the bulk of the settlement.
· Fairbanks: $40 Million. Under the terms of the agreement, Fairbanks will establish a $40 million fund to compensate credit-impaired victims, many of them low-income families, allegedly injured by Fairbanks' loan servicing practices. In addition, former Fairbanks' Chief Executive Officer Thomas Basmajian will pay $400,000 into the victim compensation fund.
A joint HUD-FTC investigation found Fairbanks violated the Real Estate Settlement Procedures Act (RESPA), the Federal Trade Commission Act (FTCA), the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practice Act (FDCPA). Both agencies claim Fairbanks, under Basmajian's leadership, engaged in a laundry list of predatory loan servicing practices involving many of the Company's approximately 500,000 customers nationwide.
HUD determined that Fairbanks and Basmajian violated RESPA in the following ways:
· Imposed late fees during the 60-day period from the effective date of the transfer of the mortgage loan;
· Failed to respond in a timely manner to consumer complaints;
· Failed to make timely written notification of any assignment, sale or transfer of servicing;
· Failed to protect consumers' credit ratings;
· Failed to make timely payments from borrowers' escrow accounts which, in certain situations, caused home insurance policies to lapse forcing new higher priced policies on the borrower; and,
· Failed to provide required annual itemized escrow statements to consumers.
Beyond the record $40 million compensation fund established by Fairbanks, HUD and FTC are requiring the Company to adhere to stringent servicing and reporting standards that will protect current and future sub-prime borrowers. These standards include requiring Fairbanks to promptly post borrowers' loan payments and prohibit the Company from imposing improper late fees and other charges. In addition, Fairbanks is required to comply with all statutory and regulatory provisions of RESPA, FTCA, FCRA and FDCPA.
· Household: $484 Million. In a landmark settlement, Household Finance Corp. agreed with regulators in 19 states and the District of Columbia to change its alleged unfair and deceptive lending practices.
State officials alleged that Household violated state laws by misrepresenting loan terms and failing to disclose material information to borrowers. Consumers complained that Household charged far higher interest rates than promised, charged costly pre-payment penalties, or deceived consumers about insurance policies.
Consumers could receive up to $484 million in total restitution, depending on how many states participate. Thousands of consumers took out real estate loans with Household since 1999, the year the states allege the problem practices began. The agreement will take effect when states representing 80 percent of Household’s real estate business agree to it.
Household agreed to:
· Pay up to $484 million in restitution to consumers nationwide, depending on how many states participate.
· Limit prepayment penalties on current and future home loans to only the first two years of a loan.
· Ensure that new home loans actually provide benefit to consumers prior to making the loans.
· Limit up-front points and origination fees to 5%.
· Reform and improve disclosures to consumers.
· Reimburse states to cover the costs of the investigations into Household’s practices.
· Eliminate “piggyback” second mortgages.
· CitiFinancial: $240 million. In the largest consumer protection settlement in Federal Trade Commission history, Citigroup Inc. will pay $215 million to resolve FTC charges that Associates First Capital Corporation and Associates Corporation of North America (The Associates) engaged in systematic and widespread deceptive and abusive lending practices. Citigroup acquired The Associates in November 2000, and merged its consumer finance operations into its subsidiary, CitiFinancial Credit Company. The settlement is contingent on approval of the federal district court in Atlanta and approval of a related settlement for an additional $25 million in a class action lawsuit pending in California. The approval process may take several months.
The FTC complaint alleged that, over a five-year period between December 1, 1995 and November 30, 2000, The Associates induced borrowers unknowingly to purchase optional credit insurance products, a practice known as "packing." The complaint also charged The Associates with additional deceptive practices and law violations.