Subprime Lending Lawsuits

Subprime lending lawsuits abound. Here we look at some of the major players over the past few years to see what really has been going on.

Subprime lending lawsuits seem to be a daily occurrence. In September of 2002, the FTC and Citigroup settle a lawsuit. That settlement, $215 million, was the largest settlement for a consumer action in the FTC history. Citigroup is not the only one involved, there are others.

Citigroup was not directly responsible for the actions set forth in the lawsuit. Two of their subsidiaries, Associates First Capital Corp. along with Associates Corp. of North America were the original culprits. Citigroup acquired the problems when they purchased the above two companies.

The FTC charged that loans were padded with unwanted and undisclosed insurance products. In a strongly worded statement, the FTC let all subprime lenders know in no uncertain terms they will not put up with deceptive lending practices. With many other lawsuits in the works, this particular case has set a very clear precedent that the FTC is fully prepared to protect the consumer from predatory and deceptive lenders. However, this only works if you exercise your rights and file a complaint.

How do you know if you are a victim of deceptive lending practices? Here are the top three that will get the attention of the FTC and will most likely result in legal action being taken against the lender. Equity stripping is when a loan is based on the amount of equity that a property has and not on the ability of the borrower to repay the loan. Packing, what Citigroup was found to be in violation of. This is when products like insurance are added to the loan.

Most insurance products carry huge commissions for the seller of the insurance. All this does is add a significant cost to the loan and it pads the pocket of the one that sold the product. You are far better off getting a term life insurance policy on your own. Finally, there is flipping. This is when a lender encourages a borrower to constantly refinance. This generates a lot of fees and points, which cost the consumer unnecessarily and provides a large income stream for the lender.

The Citigroup situation should have been a clear signal to the rest of the subprime lenders, however more subprime lawsuits are filed everyday. In 2002, Mercantile Mortgage Co. was sued for violation of FTC full disclosure laws. The company failed to inform borrowers that their loans had a balloon payment at the end of the term. The initial fine was for $250,000 but later another $270,000 was added.

In 2003, Fairbanks Capital Corp was found to be in violation of sever FTC policies. Fairbanks was a mortgage processing company, they sent payments to the lender. ?The FTC charged that they constantly posted current payments as late therefore driving up fees. Another charge was for packing loans with insurance when it was not needed. The also used illegal tactics for collecting debts. The final result was that Fairbanks was ordered to pay $40 million for consumer repayment.

As you can see, the FTC is aggressively seeking out those who practice deceptive and predatory lending. They can only do their job if you do yours. Report suspected violations to the FTC. You can reach them at ftc.gov. If you do your part, they can do theirs. It is time we all put a stop to predatory lending.