Loan Firm Agrees to Pay $19 Million in Penalties for Fraud
ITT Financial Services, with 104 loan offices across California, agreed Thursday to pay $19 million in civil penalties and make full restitution, plus interest, to an estimated 100,000 customers allegedly bilked into buying unnecessary insurance and other loan extras.
Atty. Gen. John K. Van de Kamp and Alameda County Dist. Atty. John J. Meehan, announcing a court settlement after a three-year investigation, said the payment to customers could easily exceed $50 million. They described it as one of the biggest consumer fraud cases in state history.
They said many of those who went to ITT Financial Services for loans were poor people, desperate for money, who could easily be victimized. The loan applicants were led into signing up for household contents insurance, credit life insurance, credit disability insurance, five-year term life insurance and automobile collision and comprehensive insurance, often at 27% annual interest rates and often without even realizing what they were doing.
The attorney general, at company expense, will send a mailing to 300,000 post-1984 customers of ITT with a questionnaire directed at ascertaining whether they qualify as having been misled into buying insurance and other extras at high interest rates. A toll-free telephone line, 1 (800) 448-5241, also paid for by the company, is also being established to receive claims.
The claims will be reviewed by the accounting firm of Touche Ross. It will be 18 months to two years before most of the “cheated” customers get their money, Van de Kamp said.
To compensate for sums due to victims who cannot be located, ITT Financial Services has agreed to pay $10.5 million to establish two Consumer Protection Trust Funds--one at the state level and one in Alameda County where the complaints were first brought and investigated. The money will be used to strengthen consumer law enforcement in district attorney and Legal Aid offices throughout the state.
The firm has also agreed to pay the legal costs of the investigation of its sales practices.
Officials of the loan company, a subsidiary of the ITT conglomerate, said Thursday that in agreeing to the settlement, they had admitted no wrongdoing, although they acknowledged that an internal company investigation had shown that some of the firm’s 800 California employees had engaged in sales irregularities.
ITT Financial Services general counsel Milton W. Schober said the firm had been unaware of any problem until last January.
But Van de Kamp and Meehan said this was “bunk.” They said state investigators had first begun inspecting the loan company’s records 2 1/2 years ago and had informed it at that time of widespread allegations of fraudulent sales practices.
They also noted that six other states have taken action against the company on similar grounds in the last five years, including Minnesota, where ITT Financial Services has its administrative headquarters. The company also agreed to settlements in all the other cases rather than go to court.
In California as in other states, Van de Kamp said, “bait-and-switch tactics were used to lure consumers into taking out high-priced loans that were ‘packed’ with expensive, unnecessary extras, like all kinds of insurance and thrift club memberships. Unsuspecting loan applicants were bilked out of as much as $2,000.
“By the terms of the settlement reached between ITT, my office and the Alameda County district attorney, every victim of this scheme is entitled to full restitution,” the attorney general said. “I want to stress that point: There is no cap on the total refund due to consumers. Every person who lost money to ITT can recover every dime, plus interest.”
Van de Kamp and Meehan described the ITT Financial Services operation this way:
- To gain customers, the loan firm mass-mailed certificates to millions of Californians, offering guaranteed, non-secured loans of $2,000 to $2,300. Under California law, these constitute “firm offers” that must be honored as advertised with no credit investigation or security required. Van de Kamp said he had even received the solicitations.
- When customers responded to the mailings by phone, they were routinely questioned about their employment, property, debts, insurance, income and financial status. Credit reports were obtained, and customers not deemed worthy of credit were discouraged or subjected to loan delays.
- On the basis of the information obtained, loan and insurance documents were prepared for the customer to sign before arrival. In violation of the law, pledges of personal property, household goods or vehicles were required as security, and insurance policies were drawn up for those items.
- Household contents insurance costs from $90 to $450 for the term of the loan, and collision and comprehensive auto insurance between $200 and $500 for the first year of the loan. Also appearing on the loan forms would be credit life insurance for about $35 and credit disability insurance for around $175, as well as term life insurance for $275. Included on many contracts was membership in the ITT Consumer Thrift Club, a discount catalogue service, at $25 or $40.
- Customers were not asked if they wanted any of the policies, if they wanted to pledge security or what security they wanted to pledge. Often, the value of property pledged as security far exceeded the loan amount, and, often, customers signed the loan documents without even realizing that they were purchasing insurance or Thrift Club memberships, or were given the impression that the items were either required or included in the loan as a gratuity. But in fact, the same high interest rates were charged on all the items as the loan itself.
“Customers willing to seek the loan at the highest interest rates required--25% to 35%--were usually seriously in need of the money and less likely to read carefully added items in the fine print of the contract, if they were aware of them at all,” Van de Kamp said.
The settlement included a detailed injunction against ITT Financial Services, which also goes under the names of ITT Consumer Financial Corp., Aetna Finance Co., ITT Lyndon Property Insurance Co. and ITT Lyndon Life Insurance Co. in various states, to prevent the company from pursuing such practices in the future.
Aetna Finance has no relation to the better known Aetna Life and Casualty insurance company.
