Mortgage Borrowers file RICO Lawsuit


October 26, 2004

[The Tennessean]

Claim Household International misled 13,000 in State.


Staff Writer

Two former Tennessee customers of nationwide mortgage lender Household International are charging in a Nashville federal court that the corporation was functioning as a racketeering operation when it offered misleading loan terms to its potential clients.

The allegations are, in part, a reprise of the charges underlying a $484 million settlement reached in 2002 between Household and 50 state attorneys general who were investigating predatory lending in the "sub prime" lending market, which specializes in high-cost loans for those with low credit ratings.

Nashville attorney G. Kline Preston IV argues that Household is liable under the civil part of the Racketeer Influenced and Corrupt Organization statutes. These federal criminal laws were designed to aid prosecutors in the battle against organized crime and criminal gangs, but they have a civil provision that makes possible awarding triple damages if a lawsuit is successful.

Household was acquired by HSBC Holdings PLC in March 2003. Company spokesman James Piepers declined to comment on the federal suit Friday because the corporation had not been served with it.

Plaintiffs Billy Suddarth Jr. and Angela Suddarth, who did not participate in the settlement, argue that they were victimized by Household's lending practices after they purchased a business that had previously obtained financing from Household.

The lawsuit says that more than 13,000 Tennesseans were defrauded by the company.

Among the complaint's charges:

o Household misrepresented interest rates by trying to disguise a high-rate mortgage as a low-rate loan. The plaintiffs also allege that the company misled consumers into thinking that they were reducing their principal amounts because of lower interest rates, when in fact it was because of a requirement that they make extra payments.

o Household lent money on terms that would eventually require large balloon payments, without disclosing the existence or amount of those balloon payments.

o The company applied payments to customers' accounts in such a way that even if a scheduled payment was not late, it would create a shortfall in interest, which resulted in excess finance charges.

The lawsuit claims the company's actions "establish a pattern of racketeering activity" that defrauded the plaintiffs between Jan. 1, 1999, and Sept. 30, 2002.

The lawsuit incorporates the pleadings of the state's action against Household that resulted in last year's settlement agreement in Davidson County Chancery Court.

The settlement followed a multistate investigation into allegations that Household was misrepresenting essential information such as loan costs, repayment requirements and insurance terms.

Tennesseans were entitled to $6.5 million under the terms of the settlement, according to the state Department of Financial Institutions.

The federal suit seeks unspecified damages.

The civil provisions of RICO enable plaintiffs' attorneys to charge that their clients have suffered economic harm because of a pattern of fraud and misconduct.

Plaintiffs in a civil action must prove their case based on a "preponderance of the evidence," a less stringent standard than "beyond reasonable doubt," which applies in criminal prosecutions.

The case has been assigned to U.S. District Court Judge Robert Echols.

Rob Johnson can be reached at 664-2162.

RICO: (Racketeer Influenced and Corrupt Organizations)

Copyright © 2004 The Tennessean

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