Lender Settles in State Lawsuit

The parent corporation of Household and Beneficial finance companies has agreed to pay about $12 million to settle regulators’ allegations that it routinely overcharged Californians on small loans, Department of Corporations officials said Tuesday.

Regulators initially sought $8.5 million in penalties from Household International Corp., but the company wound up paying $8.9 million on Monday after an independent audit found more overcharges, department spokesman Andre Pineda said. Household also will repay $3 million in overcharges to consumers.

The suit, which the Department of Corporations filed in November in Los Angeles Superior Court, alleged a “pervasive pattern of abusive lending practices” by Household and Beneficial, including routinely imposing $75 administrative fees on loans of $2,500 or less. The maximum permitted by state law is $50.

Household International acknowledged that overcharges occurred but denied any intentional wrongdoing. The settlement requires the Prospect Heights, Ill., company to pay Arthur Andersen to regularly audit its California operations; to create a special office at a Household facility in Pomona where regulators can review electronic images of loan files, and to establish “technological and human controls” to prevent overcharges.

Household had promised to correct the violations after the department discovered them in 1998. But an examination two years later found continuing problems, prompting Corporations Commissioner Demetrios A. Boutris to complain that “economically disadvantaged Californians found themselves illegally nickeled and dimed by a $26-billion company.”

Household spokeswoman Megan Hayden said the company thought it had fixed the problems earlier but found “to our dismay” it had not.

“We’re glad it’s resolved and that our customers have been made whole,” she said.