California's Department of Corporations, in a major test regarding what lenders can charge or not charge, has filed a $8.5 million civil suit alleging that the Household Finance Corp. and Beneficial, Inc. ignored the department's demands to stop charging excessive administrative fees.

"To date," says the Department, "Household and Beneficial have admitted about 36,000 instances in which they have violated one of California's lending laws or regulations. Furthermore, the Department discovered 1,921 incidents of charging excessive administrative fees, the same category of violations that Household was required to correct in 1998. The newer violations included charging more than one administrative fee a year, charging excessive late fees, failing to recast loans that were paid off before the due date and charging excessive prepayment penalties. "

"Three years ago, the Department of Corporations directed Household Finance to stop charging excessive administrative fees to its borrowers," said department commissioner Demetrios A. Boutris.

"Not only did Household fail to comply, but it began practicing even more abusive lending procedures and passed these practices on to its sister corporation, Beneficial, Inc. As a result, many African-Americans, Latinos and economically disadvantaged Californians found themselves illegally nickeled and dimed by a $26 billion company," Boutris added.

Household denies the charges.

"Household," says the company, "was recently made aware that the California Department of Corporations has filed a lawsuit claiming that the company has engaged in 'willful' lending violations. The company is currently reviewing the specifics of the lawsuit, but vehemently denies any assertion that it has willfully violated the lending laws that regulate its business.

"During a routine examination by the Department of Corporations in 1998 it was discovered that some HFC customers were being overcharged up to $25 on the standard administrative fee. When this error was discovered, affected customers were reimbursed, and Household implemented manual controls to address this issue, pending a permanent systems solution.

"During a routine examination by the Department of Corporations in 2000 it was discovered that some HFC and Beneficial customers were being overcharged on certain fees.

"Household, in full compliance with the Department's instructions, conducted a thorough self-audit to identify any additional customers who may have also received incorrect charges. Following that review, the company promptly issued a full refund to affected customers in California, the vast majority of whom have small unsecured loans. This audit revealed that these errors were overwhelmingly caused by issues relating to the systems conversion during the Beneficial acquisition. Household immediately implemented systems and manual controls to prevent future errors.

"Household's corrective actions resulted in a June 19, 2001, press release issued by the Department of Corporations commending Household for its 'commitment to fully refund their customers.'

"Household is extremely surprised by the Department's recent actions, especially its assumption that ethnic minorities were disadvantaged as a result of these overcharges. In accordance with all fair lending laws, lenders cannot collect ethnic or racial data on loans of this type, thus the Department's assertion cannot be based on fact."

In October, Household International (NYSE:HI), the parent company of both firms, reported "the highest quarterly net income in the company's 123-year history and its thirteenth consecutive record quarter. Earnings per share of $1.07 rose 14 percent from $.94 the prior year. Net income increased 12 percent, to $504 million, from $451 million in the third quarter of 2000."

For more articles by Broderick Perkins, please press here.

Published: November 21, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.