WASHINGTON – Victims of predatory lending schemes could get $2,500 to $3,300 under a settlement announced Thursday by the Federal Trade Commission.
Maryland was not a party to the lawsuit against First Alliance Mortgage Co. that resulted in Thursday’s settlement, which could be worth up to $60 million in what officials called one of the “largest consumer protection recoveries in FTC history.” But Maryland residents who were victimized by First Alliance can claim a share of the settlement.
The agreement, which must still be approved by a federal district court in Santa Ana, Calif., would settle charges the FTC filed in October 2000 against Irvine, Calif., based First Alliance on behalf of 18,000 borrowers.
State and federal officials could not say Thursday how many Maryland residents might be affected by the settlement. But Steve Sakamoto-Wengel, an assistant attorney general for the Maryland Consumer Protection Division, said his office did receive some complaints regarding First Alliance from Maryland victims.
Thursday’s announcement was hailed by the AARP of Maryland as a “signal that consumers and our state’s attorney generals are not going to stand idly by and let subprime lenders take advantage of them.”
“This settlement sends a very important message that this practice is taken very seriously all across the country,” said Frank Bailey, state director of AARP Maryland.
Attorneys general from the states of Arizona, California, Florida, Illinois, Massachusetts and New York had filed lawsuits against First Alliance.
The FTC charges that First Alliance, through a sophisticated campaign of telemarketing and direct mail solicitations, misled consumers about the existence of loan origination fees, or “points,” and other fees that typically amounted to 10 to 25 percent of the loan.
Consumers were also misled about how the rates on their adjustable rate mortgage loans would change over time, the FTC said. For example, consumers were told that the rate would only increase with changes in a specific market index. In fact, they automatically rose 1 percent every six months for two or three years.
“The message today should be unmistakable, fraud and deception by subprime lenders will not be tolerated,” said FTC Chairman Timothy Muris.
Since 1998, the FTC has brought 15 cases against subprime lenders, including several that are now pending.
Predatory lending has become a problem in many states, including Maryland.
It was only last month that a study by the Maryland AARP claimed that predatory mortgage lending grew from 8 percent to 14 percent of all refinanced mortgages in the state between 1998 and 2000, and that the practice has spread to every corner of the state.
“These scam artists are targeting neighborhoods and exploiting decent, hard working people,” said Sen. Barbara Mikulski, D-Md. She vowed to “continue to make sure that states and the federal government are working together to do everything we can” to end such scams.
While they hailed Thursday’s settlement, critics of predatory lending said that it is only part of the solution. They said education of homeowners is also needed to stop the problem.