Suits Show Holes in Predatory-Lending Settlements
Bergquist, Erick, American Banker
Despite national settlements with regulators and state attorneys general, big financial services companies with consumer finance operations are still exposed to predatory-lending suits.
Next month two national lenders, Wells Fargo Financial and Household International Inc.'s Beneficial unit, are scheduled to go before juries in Mississippi. They are accused of cheating several borrowers out of thousands of dollars.
In January, Citigroup Inc. is to stand trial in Lowndes County, Ala., for similar abuses alleged by seven borrowers. All three cases were filed two years ago.
At first glance the suits appear middling. The sums involved pale in comparison to the hundreds of thousands of dollars at stake in the cases of subprime mortgage borrowers who stood on the brink of foreclosure.
But Tom Methvin, the Birmingham, Ala., attorney for the plaintiffs in all three cases as well as nearly 11,000 in similar suits he is planning, noted that Alabama and especially Mississippi juries are known for tough verdicts against corporations in litigation.
And because most of these borrowers have found fault with personal consumer finance loans, not mortgages, they are not subject to the vast national settlements that companies like Citigroup and Household International Inc., which is owned by HSBC Holdings PLC, have signed in the last year to cut their exposure to litigation.
A spokeswoman for Wells Fargo Financial rejected Mr. Methvin's arguments. "It is incorrect to liken this situation to predatory-lending issues," she said. "This is instead about opportunistic plaintiffs' attorneys taking advantage of a litigation climate in Mississippi that is highly unfavorable to businesses."
And some observers also doubt that the predatory-lending argument would work, given that the loans were only for thousands of dollars.
Lisa Donner, a spokeswoman for the Association of Community Organizations for Reform Now, a consumer activist group, questioned whether the abuses were as egregious as others the industry has been accused of.
"The damages are terrible, but it is not the same magnitude," she said. "This is not the same as losing your house."
Mr. Methvin, of Beasley, Allen, Crow, Methvin, Portis & Miles PC, said corporations should be punished for any abuses they commit. "What Beneficial has done in Mississippi is very harmful," he said.
Laurence Platt, a well-known lawyer for home lenders, said, "The loss of a home is a better sound bite for a plaintiff, but a borrower doesn't need that to be able to claim abusive practices."
Mr. Methvin, who claims he has prosecuted more predatory-lending cases than anyone in the country over the past 12 years, said he has not come close to filing all his clients' suits yet. He has filed several on behalf of Wells borrowers and a fraction of those to be filed against Citi, Household, or their various entities, in addition to suits against Washington Mutual Inc. for nearly 1,000 borrowers. …