Minn. Sues First Alliance, Alleges Loan Overcharges

Controversial home equity lender First Alliance Mortgage Co. was hit with a lawsuit Monday by Minnesota authorities, who accused the Irvine firm of overcharging customers by thousands of dollars through hidden loan fees.

Minnesota Atty. Gen. Hubert H. Humphrey III said First Alliance’s employees rushed consumers through mountains of paperwork and used other “fraudulent schemes” to avoid telling borrowers about costs that ran as high as 30% of the amount being loaned.

Some clients, many of them elderly, unknowingly paid as much as $24,700 in loan fees, the suit alleges.

Lynn Brainard, a First Alliance spokeswoman, acknowledged that the company has been sued, but she said it would have no comment until “we 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 loan-origination fees and higher interest rates to offset the extra risk it takes on.

First Alliance has been the target of several other suits alleging that it engaged in questionable 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 1994, First Alliance 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.