HEADLINE: Household Announces Changes
in Lending Practices
BYLINE: By PATRICK
McGEEHAN
BODY: Three days
before a Senate committee is scheduled to hold hearings on predatory lending, Household International, one of the nation's
largest consumer lenders, announced several changes it would make to practices
that largely affect the lower-income families that are its main customers.
Household, which operates the Household Finance and
Beneficial lending operations, said it would reduce interest rates paid by some
borrowers, eliminate some penalties for paying off loans early and lend as much
as $10 million to people facing imminent foreclosure of their homes. The
announcement came two weeks after Household said it would stop selling a type of
loan insurance that consumer advocates have charged is little more than a tool
for stripping the equity out of borrowers' homes.
Citigroup, the nation's largest consumer lender, said in late June that
it would stop selling the same product, single-premium credit insurance. Last
week, another big finance company, the American General Corporation, said it had
also decided to drop the product, which requires a borrower to pay in advance
for several years of insurance that would pay off the loan in the event of the
borrower's death or disability.
Household has been the
prime target of criticism by some housing advocacy groups, including the
Association of Community Organizations for Reform Now, known as Acorn. But
company officials said the impending changes were unrelated to any pressure from
those groups or Congress.
"It's not tied to hearings or
activism or anything else in particular," said Craig Streem, a spokesman for
Household, which is based in Prospect Heights, Ill. "We've been working on these
for quite some time. So, it really is a coincidence."
Senator Paul S. Sarbanes, Democrat of Maryland and chairman of the
Senate Banking Committee, has scheduled hearings for July 26 and 27 on the
issue. Among those set to testify are four people identified as victims of
predatory lending, including a Household customer. Other testimony will come
from community activists and representatives of banking industry groups, but no
representatives of Household, Citigroup or American General, said a spokesman
for Senator Sarbanes.
Household said the package of
changes it planned would cost the company $35 million, but Mr. Streem said the
company did not expect any material effect on its earnings. He said the company
planned to stop penalizing borrowers for paying off loans early after the third
year. It also planned to increase the discount it gave after the first two years
to borrowers who make timely payments.
In a new twist,
Household said it would try to rescue people who were on the verge of losing
their homes to other lenders that had engaged in predatory practices.
Maude Hurd, national president of Acorn, said the changes
would not satisfy the company's critics. "While Household proposes a small
amount of money for loans to rescue the victims of predatory loans, they do
nothing to help the thousands of victims of their own practices," she said in a
statement.
Mr. Streem said Household also planned to
start offering loans with lower interest rates -- what he called a "primelike
rate" -- to more creditworthy customers. But he said the company had no plans to
reduce much higher "subprime" rates charged to borrowers with weaker credit
ratings, a change that Acorn representatives have demanded.
"Price controls have never worked," Mr. Streem said. If Household
cannot earn what it considers an appropriate return for lending in poor
neighborhoods, he said, "we will not be funding loans in those neighborhoods."
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