First Alliance to Issue Refunds to Borrowers
A federal judge closed out the predatory-lending case against Irvine-based First Alliance Corp. on Tuesday, clearing the way for settlement checks to go out next month to more than 18,000 borrowers who, according to private lawsuits and the Federal Trade Commission, were routinely tricked into paying exorbitant fees.
U.S. District Judge David O. Carter in Santa Ana closed the bankruptcy case of home-equity lender First Alliance and signed orders causing about $50 million to flow into a fund from which damages will be paid to borrowers.
“The game plan is to have the checks mailed in the first couple of weeks of December,” said Dan Mulligan, a San Francisco attorney who represented borrowers.
The fund is expected to get an additional $25 million early next year from the sale of a final batch of loans and receipt of a tax refund owed to First Alliance, bringing the total settlement to about $75 million.
Borrowers could receive more depending on the outcome of a related lawsuit against Lehman Bros. Holdings Inc., which funded First Alliance and bundled its loans for sale as securities. Carter has scheduled a trial in that case for Jan. 28. A Lehman attorney couldn’t be reached for comment.
Another wild card is what Reliance Insurance Co. will pay on professional liability policies it issued to First Alliance from 1996 to 1999. The policies have a face value of $11 million. Reliance is in bankruptcy proceedings.
The First Alliance settlement includes $20 million paid by the company’s founder, Brian Chisick, with the rest coming from the company’s assets. Chisick’s attorney, Ron Rus of Irvine, said his client is glad to get the case closed “so he can continue with his retirement.”
When first announced, the $75-million settlement with First Alliance set a record for an FTC lending-abuse case.
It soon was eclipsed, however, by Citigroup Inc.’s $240-million settlement of FTC charges and Household International Corp.’s agreement to pay $484 million to end predatory-lending investigations by state attorneys general. Many additional cases charging lending violations are pending and more are expected, attorneys said.
“I think it’s inevitable,” said Mulligan, who was involved in litigation against Citigroup as well as First Alliance. “The marketing tactics are very similar.”
Wall Street is closely watching the Lehman case, which attorneys said appears unlikely to be settled before trial. The plaintiffs are seeking about $400 million, but Lehman has made no settlement offers.
