Suit Alleges Irvine Lender Overcharged Clients
Minnesota authorities Monday sued First Alliance Mortgage Co., accusing the controversial Irvine lender of overcharging customers thousands of dollars through hidden loan fees.
First Alliance’s employees rushed clients through mountains of paperwork and used other “fraudulent schemes” to avoid telling borrowers about costs that ran as high as 30% of the amount of the loan, said the state’s attorney general, Hubert H. Humphrey III.
Some clients unknowingly paid as much as $24,700 in loan fees, according to the lawsuit.
At least 100 people, many of them elderly, signed up for the mortgages in Minnesota, authorities said.
One elderly couple, Ronald and Mary Theriault of St. Paul, unknowingly paid total fees of about $13,000 to borrow $33,438, according to the lawsuit. When Theriault saw the principal amount was more than $47,000, he complained to First Alliance, which told him not to worry because the figure would decline in a couple of years, the suit said.
Lynn Brainard, a First Alliance spokeswoman, acknowledged the company had been sued but said it would have no comment until it “can further review the complaint.”
The company is a “sub-prime” lender, specializing in loans to people with less than stellar credit histories. It charges higher interest rates and higher loan-origination fees for such items as title checks and credit evaluations to offset the extra risk.
“This is the biggest case against a sub-prime lender we’ve ever filed in terms of the breadth of deceptive practices or the amount of damage to individual consumers,” said Prentiss Cox, assistant attorney general.
“This case is about them using techniques and pseudo-technical terms to hide extraneous home loan charges.”
The lawsuit also contends that the company sold adjustable-rate mortgage loans with introductory rates that expired after six months without the customers’ knowledge.
In addition, the interest rates on these loans were set to increase 2 to 4 percentage points over two years, even when the key lending rates remain stable, the suit said.
The lawsuit seeks restitution for customers and unspecified civil penalties. State officials also said they plan to seek a temporary injunction requiring the company to disclose its borrowing fees and prohibiting “deceptive practices,” Cox said.
First Alliance has been the target of several other lawsuits alleging that the firm engaged in questionable lending practices. The company also disclosed last month that federal authorities and seven states were investigating its lending practices.
At the time, Chief Executive Brian Chisik said the company “has always followed all state and federal forms for disclosure.”
In 1989, state securities regulators accused the company of systematically refusing to make loans to residents of some black neighborhoods. Without admitting wrongdoing, it settled the lawsuit by agreeing to pay $436,000 and to abide by state fair-lending laws.
In 1994, the lender agreed to pay $6.85 million to settle a class-action suit accusing it of charging inflated and undisclosed loan fees. It admitted no wrongdoing.
More recently, First Alliance has been defending itself against a string of lawsuits, mostly in Northern California, that the American Assn. of Retired Persons has joined.
AARP accuses the company of using aggressive telephone and mail campaigns to tout low rates to elderly homeowners, then imposing “unconscionable” fees of as much as 15% of the loan amount.
In addition, First Alliance has been accused in another lawsuit of defrauding stockholders by failing to disclose pertinent information.
The company’s stock, which hit a high of $22.13 a share about a year ago, sank as low as $2.38 after the federal probe was disclosed early in October. The stock closed Monday at $5 a share, up 13 cents.
