November 1, 2002

The Michigan Office of Financial and Insurance Services (OFIS) continues to work on details of the Household Finance Corporation settlement. This work is part of the multi-state effort that led to a proposed settlement for violations of Michigan’s Consumer Financial Services Act – an act that is one of the most comprehensive in the country. OFIS also continues to update the toll free number providing consumer information on the Household settlement. The toll free number is (877) 598-0010.

“The proposed Household settlement is on track to provide restitution to Michigan consumers who were harmed by the company’s lending practices,” said OFIS Commissioner Frank M. Fitzgerald. “The multi-state effort continues to bring a large number of resources together. If Michigan were investigating Household alone, we would not have been as successful.”

Some Michigan consumers have notified OFIS that another mortgage company or a lawyer has contacted them about the Household settlement. Consumers do not need to take any action at this point to be included in the settlement. The proposed settlement will cover real estate secured loan activity with Household from January 1, 1999 - September 30, 2002, so changes to payments or contracts now will not affect consumer eligibility for participation in the settlement.

As part of the proposed settlement, Household will hire a national administrator to handle claims as well as an independent monitor to evaluate the company’s performance and verify the information provided for the settlement. State regulators involved in the multi-state investigation will approve hiring the administrator and establish the criteria for evaluation and verification. The administrator will contact consumers affected by the settlement.

OFIS will check existing Household consumer complaints against the list of consumers involved in the settlement. OFIS also will be working with ACORN (Association of Community Organizations for Reform Now), Detroit Alliance for Fair Banking, fair housing commissions from across the state, and the Attorney General staff to confirm qualifying consumer participation in the settlement.

As part of the proposed settlement, Household has agreed to pay up to $484 million to consumers nationally – approximately $14 million total to over 10,000 Michigan consumers – for alleged unfair and deceptive lending practices in the “subprime” lending market over the past four years. All of the money involved in the proposed settlement will go directly to Michigan consumers and Household will pay for administrative costs.

“Household is only providing data and writing a check,” added Fitzgerald. “The information being provided will be checked by an independent administrator and state regulators continue to be the watchdog on this settlement.”

For the settlement to be finalized, state participation must total 80% of Household’s loan volume affected by the settlement. The deadline for states to indicate participation is December 15th. Early indications are that enough states will sign on and the settlement should be approved.

Four Household lending practices caused harm to Michigan consumers, mostly in the second mortgage industry that is a large part of Household’s Michigan business. The first is home equity lines of credit that were allegedly issued as a second loan to pay for fees relating to the first loan. Second, Household appears to have assessed inappropriate prepayment penalties. Third, Household issued “live checks” to consumers that automatically created a loan with a signature. Fourth, Household allegedly included large amounts of credit insurance on real estate loans – sometimes without the consumers’ knowledge.

OFIS has performed an analysis to determine Household’s financial health post-settlement. Household should remain a financially viable business with the proposed settlement.

This proposed settlement applies only to real estate loans with Household. OFIS is investigating additional complaints against Household lending practices, especially those for auto loans. OFIS also continues to investigate complaints against any mortgage lender – consumers with complaints should contact OFIS toll free at (877) 999-6442 or on the internet at www.michigan.gov/ofis.

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The Michigan Office of Financial and Insurance Services (OFIS) is responsible for the regulation of Blue Cross Blue Shield, 28 HMOs, 138 banks, 281 credit unions, almost 1,500 insurance companies, 1,583 investment advisers, 2,164 securities broker-dealers, 6,000 consumer finance lenders, 89,000 insurance agents, and 120,715 securities agents. OFIS is part of the Department of Consumer and Industry Services and is primarily fee-funded, requiring minimal public tax dollars for its regulatory and consumer assistance activities. OFIS has insurance, financial institutions and securities information available online at the OFIS web site, www.michigan.gov/ofis, or at the Michigan government home page, www.michigan.gov. All information is also available through the OFIS toll free number, (877) 999-6442. If you would like to receive OFIS press releases electronically, please email ofis-info@michigan.gov.