Encino Company, 6 Others Settle With FTC Over High-Rate Loans

WASHINGTON —  The government announced settlements Thursday with seven companies, including one in Encino, accused of violating federal restrictions against exploiting people who take out high-rate loans.

The settlements will provide more than $572,000 in refunds to consumers, the Federal Trade Commission said. Others are being investigated.

Homeowners who may not qualify for conventional loans but want money for house repairs or emergencies have helped fuel the high-interest home-equity loan market. But this surge has come with an explosion of deceptive business practices that cost consumers who can least afford it thousands of dollars, federal regulators say.

“Once some of those people get their hooks into you, it’s very hard to get out or get out with your equity intact,” FTC chairman Robert Pitofsky said. He stressed there are legitimate lenders of high-rate loans. But “we see a lot of very abusive behavior.”

The 1994 Home Ownership and Equity Protection Act requires lenders to reveal the annual percentage rate, the regular payment amount and finance charges. The law prohibits lenders from concealing balloon--or lump-sum--payments and prevents lenders from making loans to people on the basis of their home equity rather than their ability to pay.

The law also does not allow most prepayment penalties--charges for refinancing the loan at a different rate. Consumers are entitled to a three-day cancellation period.

But the commission has found many lenders skirting the rules.

The settlements, which do not constitute an admission of wrongdoing, were with companies including Barry Cooper Properties of Encino.

Nellie Nicholson, 73, in need of some extra money to post bail for a family member, said she approached a lender about a $10,000 home-equity loan. The payments were too high for her $740 monthly Social Security check. Her loan was refinanced by Cooper Properties with monthly charges covering only the interest, sticking her with a $43,500 balloon payment after five years.

She still couldn’t afford it, and the lender threatened to foreclose on Nicholson’s house.

“I didn’t think people were so dirty they could do those things,” said Nicholson, of Compton.

Reached Thursday, Barry Cooper denied any wrongdoing and said he settled the case with the government to avoid costly litigation.

“I did not do anything improper, and that is why I did not admit in the consent decree to doing anything improper,” Cooper said. “I entered into a settlement with FTC to avoid the extraordinary costs I would have incurred litigating a matter that would prove I did nothing improper.”

Legal advocates say certain groups are particularly susceptible. Low-income residents who don’t have a traditional bank in their neighborhood or elderly homeowners who might not think they can get a loan except through a broker are more likely to become prey, says Benjamin Diehl, an attorney with Bet Tzedek Legal Services in Los Angeles.

Lenders use fliers, door-to-door solicitations and ads to attract potential borrowers to high-cost loans. Those are defined as loans in which more than 8% of the total loan amount is in fees or in which the annual percentage rate exceeds by more than 10 percentage points Treasury notes of comparable maturity.

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Times staff writer Andrew Blankstein contributed to this story.