FOR IMMEDIATE RELEASE:
October 11, 2002

FOR FURTHER INFORMATION CONTACT:
Genene Morris, Consumer Affairs (973)504-6327
Mary Cozzolino, DOBI (609) 292-5064

NEWARK - New Jersey has entered into a monumental, multi-million dollar "agreement in principle" with Household International, its subsidiaries and related entities ("Household") that, if finalized, will significantly change the company's mortgage lending practices, Attorney General David Samson, Banking and Insurance Commissioner Holly C. Bakke have announced. Joining Attorney General Samson and Commissioner Bakke in today's announcement are Consumer Affairs' Director Reni Erdos and Director of Banking H. Robert Tillman.

As part of the multi-state agreement, Household, one of the nation's largest consumer-finance companies specializing in sub-prime loans, has agreed to pay up to an unprecedented and record-breaking $484 million nationwide in consumer restitution and significantly alter its business practices to ensure that borrowers are not misled in connection with the company's loans. The restitution amount is believed to be the largest ever in a state or federal consumer case.

The settlement is an "agreement in principle" that will not be finalized until enough states have signed on representing 80 percent of Household's real estate loans generated between January 1, 1999 to Sept. 30, 2002. The settlement specifies that the restitution fund could range from $387.5 million up to $484 million, depending on participation by states. The deadline for states to participate is Dec. 15, 2002. Each state's share of the restitution fund will be proportional to the state's percentage share of Household's total real estate loan secured dollar volume.

The details of the settlement and the process by which consumers can apply for restitution are being finalized and will be announced at a later date. Each state will design its own restitution plan, since lending practices by Household varied significantly from state to state. As of this time, that plan has not been finalized. An independent administrator will be processing the claims on behalf of the State.

The agreement arises out of concerns by state attorneys general and financial regulators that Household's secured real estate lending practices violated consumer protection, financing and banking laws and regulations. State attorney general offices and banking and financial regulators from 19 states, including New Jersey, and the District of Columbia began coordinating their efforts last spring after identifying a pattern of complaints from borrowers who said they had been misled into agreeing to home loans with far different and much more expensive terms than had been promised. More specifically, consumers complained that Household charged them far higher interest rates than promised, charged costly pre-payment penalties, or deceived them about insurance policies. Some consumers were trapped in costly loans, the states alleged.

Household cooperated in the case when the States presented their concerns. The company worked with the multi-state group - over a period of about four months - to develop and negotiate solutions to the practices identified by the states. The settlement includes Household Finance Corp., and Beneficial Finance Corp.

Attorney General Samson said the unique partnership between state financial regulators and attorneys general offices served to benefit thousands of New Jersey consumers with Household loans.

"This landmark agreement in principle is intended to set a national standard for the consumer-finance industry and curtail predatory lending practices in the sub-prime market," Attorney General Samson said. "By pooling our resources and working together to investigate Household and negotiate this agreement, New Jersey and the other states are sending a loud and clear message: We are serious about stamping out abusive predatory real estate lending practices that do nothing more than enrich lenders and rob the hard-working poor of their dreams, money and peace of mind."

"The settlement expresses the commitment of the Department of Banking and Insurance to ending predatory lending practices in New Jersey," Commissioner Bakke said.

"Most sub-prime borrowers are already in precarious financial situations," Director Erdos said. "They are often low-income people who have less than stellar credit and limited options when it comes to borrowing. As a result, they all too often become saddled with high interest rates and repayment terms that leave them paying for high-cost real estate loans they can hardly afford.

"These types of real estate loans do nothing to benefit borrowers and, frankly, do harm to communities that struggle to make ends meet," Director Erdos said.

"We know that most New Jersey banks do not engage in these kinds of practices," Director Tillman said. "We are working with the banking community to rein in those who are not treating consumers fairly."

Under the terms of the settlement, Household has agreed to implement certain measures to ensure compliance with the settlement terms and that consumers are not burdened with unfair and deceptive loan agreements.

For example, Household agrees to amend all of its mortgage agreements nationwide to change the pre-payment penalty provision on loans. Specifically, Household will limit pre-payment penalties on current and future loans to only the first two years of a loan.

The agreement also requires Household to, among other things:

• Ensure that new 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 so that all representations regarding loan terms are fair, accurate and not deceptive.
  
  
• Eliminate "piggyback" second mortgages.

Household will also hire an independent monitor, subject to approval by the states, who will prepare several reports over a five-year period to ensure compliance with the terms of the agreement.

For more information, Consumers may call Consumer Affairs at 973-504-6200 or the Department of Banking and Insurance at 609-984-2777.

Deputy Attorneys General Carol G. Jacobson and Sharon Young of the Division of Law handled this matter for the State.