First Alliance Corp., the bankrupt mortgage lender besieged by numerous actions nationwide, was slapped with a state lawsuit accusing it of luring thousands of low-income borrowers into loans carrying excessive fees and monthly payments.
The consumer-protection lawsuit, filed Monday in Los Angeles Superior Court by Atty. Gen. Bill Lockyer, charges the Irvine lender with lying about loan terms, especially exorbitant up-front fees and escalating monthly payments.
"This unfair business practice placed thousands of California homeowners, many elderly, at risk of losing their homes," Lockyer said.
The suit accuses First Alliance, its First Alliance Mortgage Co. unit, and founder Brian Chisick and another executive of misrepresentation and unlawful business practices.
Its practical effect was unclear because First Alliance shut down last year and has been liquidating its assets during proceedings in U.S. Bankruptcy Court in Santa Ana. Consumer groups contend the action provides little help and comes too late.
First Alliance became a central symbol of predatory lending practices for groups pressuring the government to clean up the so-called sub-prime industry, which loans money to borrowers with poor or spotty credit.
Facing a wave of lawsuits and investigations in half a dozen states, the company filed for bankruptcy protection more than a year ago. The Federal Trade Commission filed its own suit against the defunct lender last October, characterizing the action as part of a national crackdown on predatory lending.
Targeting homeowners with considerable equity in their houses, First Alliance set loan fees that ranged from 10% to 25% of the loan amount, often exceeding $10,000 for an $87,000 loan, the average amount of a First Alliance loan, the lawsuit alleges. Most borrowers with good credit pay 1% to 3% in fees.
Times staff writer Marc Ballon contributed to this report.