Attorney General Thurbert Baker announced today that Georgia has formally entered into a settlement with Household Finance Corporation through a consent judgment filed yesterday in Fulton County Superior Court. The filing of the consent judgment marks the culmination of a year-long multi-state investigation of Household’s lending practices by the nation’s Attorneys General, and the resulting settlement of $484 million for Household’s predatory lending practices is the largest consumer restitution award ever in the nation’s history.

“Household will change its lending practices under the settlement," Baker said, "and it will pay Georgia consumers over $9 million in restitution for alleged unfair and deceptive lending practices in the subprime lending market. Loan disclosures should be clear, accurate and straight-forward, and consumers should only be charged the interest rate they were promised. Today’s settlement ensures exactly that."

Household will pay a total of $484 million in consumer restitution nationwide, Baker said. Consumer protection officials confirmed that amount is the largest direct restitution amount ever in a state or federal consumer case. Georgia’s share of the settlement represented the percentage of Household’s loan volume that was closed here in Georgia.

The tentative settlement was announced October 11, but the settlement and restitution amount were contingent on settlement agreements with states representing at least 80% of the dollar volume of Household's real estate-secured loans. Baker confirmed that consent judgments were filed by yesterday in all fifty 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. Consumers often were trapped in costly predatory loans by these practices.

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. Household 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%.

• Reform and improve disclosures to consumers.

• Eliminate "piggyback" second mortgages.

Attorney General Baker said each state will design its own consumer-restitution plan, since some of the lending practices varied significantly from state to state. He confirmed that a settlement administrator will be selected shortly, and Household Finance will provide a list of consumers and their addresses for Georgia to use in notifying affected consumers. Information on restitution terms and procedures will be sent to Household customers by early summer 2003. Consumers do not need to contact the Attorney General’s office at this time, as Georgia officials will be in contact with consumers eligible for restitution under the settlement.

Baker stated, “This final settlement will provide momentum for Georgia’s efforts to ensure that consumers are protected from unfair lending practices. The agreement also sends a clear message that lenders in Georgia must comply with our new predatory lending law.” Baker added that questionable practices in the lending industry will continue to be a priority for state consumer protection and financial regulators.