Attorney General's News Release

December 16, 2002

Nixon files settlement with Household Finance; Missouri consumers to receive approximately $13.1 million

Jefferson City, Mo. — Attorney General Jay Nixon said Monday the state has formally entered into a settlement with Household Finance Corp. that will provide more than $13.1 million in restitution to Missouri consumers through a consent judgment filed today in Cole County Circuit Court.

"Household will change its lending practices under the settlement and will pay Missouri consumers $13,164,432 in restitution for alleged unfair and deceptive lending practices in the subprime lending market," Nixon said.

Household will pay a total of $484 million in consumer restitution nationwide. State officials said that is the largest direct restitution amount ever in a state or federal consumer case.

The tentative settlement was announced Oct. 11, but the settlement and restitution amount were contingent on settlement by today with states representing at least 80 percent of the dollar volume of Household's real estate-secured loans. Nixon said consent judgments are being filed by today's deadline in all 50 states and the District of Columbia, which means Household will pay the maximum restitution amount of $484 million.

The states had alleged that Household violated state laws by misrepresenting loan terms and failing to disclose material information to borrowers. The investigation focused on real estate-secured loans. Consumers complained that Household charged far higher interest rates than promised, charged costly prepayment penalties, and deceived consumers about insurance policies. Some consumers were trapped in costly loans by some of the practices, the states alleged.

State officials said Household cooperated in the case when the states presented their concerns. In addition to restitution, Household agreed in the settlement to numerous injunctive terms and will:

• 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 a benefit to consumers prior to making the loans.
• Limit up-front points and origination fees to 5 percent.
• Reform and improve disclosures to consumers.
• Eliminate "piggyback" second mortgages.

Nixon said each state will design its own consumer restitution plan, since some of the lending practices varied significantly from state to state. Nixon said a settlement administrator will be selected shortly, and information on restitution terms and procedures will be sent to consumers in the next few months. Consumers do not need to contact the Attorney General's Office or the Missouri Division of Finance at this time.

However, Nixon said, consumers who have moved and who had real estate-secured loans with Household during the period in question (Jan. 1, 1999, through Sept. 30, 2002) may wish to contact the Division of Finance to provide a current address.

Each state's share of the restitution fund will be proportional to the state's percentage share of Household's total U.S. real estate loan secured dollar volume.

Inquiries from consumers should be directed to consumer@ago.mo.gov or 1-800-392-8222 (from within Missouri) or 573-751-3321 (outside Missouri).

All media inquiries should be directed to the Communications Office.

E-mail      Phone: 573-751-8844         Fax: 573-751-5818