Household HSBC Watch

A Report - Will HSBC Buy Ameriquest

There has been much speculation of late concerning HSBC and Ameriquest. Will HSBC Bank plc buy Ameriquest? Will the marriage of two predatory lenders - Household International and Ameriquest - cause reputational risk to HSBC, and do they really care? These questions and many more remain unanswered as of this writing, although speculation abounds within the lending and mortgage industries.

...your Attorney General sued Household and HSBC, not the Feds...

Would HSBC rescue those with predatory high rate Ameriquest loans? Not hardly, as evidenced by Household International. While promising changes at Household, nothing really changed except what was mandated under the nationwide $484 million (USD) settlement. While HSBC and Household International fought hard for federal oversight of banking, readers must remember that Attorney's General from 48 states secured the Household - HSBC settlement, not federal regulators. The Ameriquest settlement happened under similar circumstances. Many say the Ameriquest settlement was fashioned after the Household settlement, while others deny the claim.

We shall not use this format to pick apart both settlements. Our theme is whether or not HSBC will buy Ameriquest. As with any greedy company that self-destructs - from Household International under William F. Aldinger to Enron under Kenneth Lay - those who suffer are the company's clients, borrowers, and stockholders. HSBC is quick to acquire predators that self-destructed. After all, HSBC Finance Corporation has tested the limits of the law while holding a gun to the heads of customers. The courts looked at HSBC contracts. While saying they are technically legal, such contracts are oppressive, holding HSBC customers hostage with no way out. Should HSBC - and more accurately HSBC Finance Corporation - acquire your Ameriquest mortgage, the nightmare might begin. Although the law says your terms cannot be changed HSBC can find a way.

Take one example that applies to HSBC credit cards as well as HFC and Beneficial Finance loans:
Payments by telephone cost you $15. In the past HSBC would deduct the $15 charge first, thus leaving your payment short. Even though the customer spoke to a customer service representative who perhaps should have told you about this scam, nobody told you anything. The following month the customer received late fees, past due fees, and the highest maximum interest rates allowable by law. HSBC Finance did change the policy for some customers. Now the $15 fee appears as a new charge on the old account, at the maximum interest rate. One can only assume HSBC knew the previous policy might be considered predatory, because it was. Customers are bound by binding arbitration, thus they cannot sue, but the practice and many others left the door open for the states to file suit. Once again federal regulators continued to pass the blame between the OCC, FTC, and others while accomplishing very little.

Is Ameriquest a good fit for HSBC? Here at Household - HSBC Watch we think so, but for different reasons. Now in our seventh year as consumer advocates, our watchdog organization thinks HSBC might buy Ameriquest for the name as well as the accounts associated with Ameriquest. After all, Household International, HFC, and Beneficial Finance are synonymous with predatory lending. The name conjures up thoughts of payday loans, pawn your title loans, high rates, tax refund loans, and extremely high interest rates. Ameriquest gives HSBC a way out. Dump the Household International name once and for all. Doing so would not change anything and does not remove one from the bottom of the barrel as a predatory lender with onerous terms and conditions, but it does sound better.

What other nasty tricks, either as a credit card processor or mortgage lender, can we expect from HSBC? Will HSBC buy Ameriquest? Will all first mortgages belong to the reputable side of HSBC Bank USA? Will all second mortgages go to HSBC Finance Corporation (Household International with a new name)? Only time will tell. Remember that Ameriquest is privately held, thus easier to acquire. Household International kept ownership of over 51 percent of the company. Other similarities abound. One little known fact is that Ameriquest credit cards are already handled by HSBC, which means HSBC Finance Corporation (Household International with a new name). How well does this predator represent the companies for whom they handle credit cards? We need only reference Shea v. Household for that answer, where HSBC owned Household for two years of the period 1994 through 2004. HSBC admitted no wrongdoing, and nothing changed. Customers are in a binding arbitration choke hold, the OCC and FTC are playing 'Hot Potato' with complaints, and the abuse continues today according to complaints and reports received from all over the nation by Household - HSBC Watch.

HSBC claimed they wanted Household International for their global computing and IT (information technology) platforms.

We doubt the ethics of that claim, as HSBC later formed what they called the 'Household Model' thereby exporting predatory lending to developing nations. Some think HSBC and Household International pushed their reputation to the limit in the United States. There is a point where further charges of predatory lending, mortgage fraud, improper credit card processing, onerous terms and conditions, and a record number of Better Business Bureau complaints would impede HSBC's United States expansion plans.

Ameriquest paid a $325 million fine and Household International paid a $484 million fine for predatory lending. HSBC did business with Household International before acquiring the company. HSBC does business with Ameriquest. Intelligent minds suggest all three turned a blind eye to ethics in business, wherein HSBC has the capital and clout to buy out firms that self-destruct, thus protecting their assets to some degree. The real question is whether HSBC has, or had, any desire to change the predatory ways and onerous terms and conditions these companies force upon their own customers. Take one example that is often overlooked. HSBC is headquartered in London. HSBC wants the United States to change legal terms of the U. S. Soldiers and Sailors Civil Relief Act so those called to active duty in Iraq would not be eligible for a six percent interest rate unless they are in Iraq and in a hostile fire zone. Are denying interest rate reductions that important to HSBC? Meanwhile HSBC is making inroads in Iraq and establishing itself as a major factor in Iraqi finance. We regard such ideas as arrogant and self-serving!

What follows is a review of Household International tactics. One must ask how they would feel if this happened to you, your family, aged mother and father, or perhaps those close to you.

A. Two real-estate secured loans made at or near the same date to the same consumer (“split loans”, or “loan-splitting”): Plaintiffs allege that such loans were made through unfair and deceptive means, including, but not limited to, misrepresentations or omissions concerning the number of loans, misrepresentation of the benefits of refinancing and debt consolidation with the high-cost split loans; use of the second loan as a result of the high amount of points and fees financed as part of the primary loan; and as a means to make high loan-to-value mortgage loans which had the effect of preventing borrowers from seeking to refinance with lower rate lenders.

B. Loan points and origination fees: Plaintiffs allege that Defendant failed to provide timely and adequate information to borrowers concerning the amount and purpose of the putative (define) “discount” or “buy-down” points and fees imposed on their loans, including, but not limited to, failing to provide meaningful early disclosures as required by law, 24 C.F.R. 3500.7.

C. Misrepresentation of interest rates: Plaintiffs allege that Defendant misrepresented the interest rates to be charged on loans through such means as using a “low-ball” rate purporting to be an “effective” rate or an equally deceptive term. Such misrepresentations and omissions occurred in the context of Defendant’s attempting to disguise a high-rate mortgage as a low-rate mortgage through use of (for payment of an additional fee) a bi-weekly payment plan. Defendant failed to inform consumers that accelerated principal reduction occurred through making extra payments, instead misleading consumers into thinking the savings were attributable to lower interest charges than the loans provided for. Additionally, misleading comparisons were made between rates on existing debts which applicants were considering refinancing or consolidating, and the rate(s) to be charged on Defendant’s proposed loan or loans.

D. Monthly payment amounts: Plaintiffs allege that Defendant failed to inform consumers that higher payments, rather than lower rates, were the feature of the bi-weekly payment program which would result in overall savings in finance charges. Further, in making sales presentations with respect to refinancing and debt consolidation applications, Defendant made misleading comparisons of monthly payment obligations between existing debts and the proposed new loan or loans to be made by Defendant.

E. Single premium credit and other insurance product: Plaintiffs allege that Defendant engaged in a pattern of “insurance packing,” including, but not limited to, misleading consumers as to the voluntary nature of the insurance, the price of the insurance, and the benefits and/or term of the insurance.

F. Prepayment penalties: Plaintiffs allege that Defendant engaged in a practice of misleading consumers about the presence of prepayment penalties on their loans, and imposed prepayment penalties in violation of state law.

G. Unsolicited loans offered through an unsolicited negotiable check that the consumer can accept by endorsing and depositing or transferring the check (“live checks”): Plaintiffs allege that Defendant used “live checks” as a “bait” to make high-cost mortgage loans; used misleading representations; and failed to adequately inform consumers that the unsolicited check was a loan.

H. Practices with regard to home equity lines of credit: Plaintiffs allege that Defendant extended what was in substance closed-end credit disguised as open-end credit with the intent to avoid making meaningful disclosures concerning the payment terms, such as the existence of large balloon payments. Plaintiffs further allege that Defendant extended what was in substance closed-end credit with APRs in excess of 10% over the US treasury rate for comparable maturities, which Defendant disguised as open-end credit to evade the requirements of the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639.

I. Loan billing practices relating to simple interest calculations: Plaintiffs allege that Defendant’s practices by which payments were credited to accounts on the basis of the number of days between payments frequently resulted in situations in which scheduled payments were insufficient to pay accrued interest, creating a shortfall in interest (“interest short”), which resulted in excess finance charge costs for borrowers. Such shortfalls could occur even when payments were not late. Defendant further made representations concerning the opportunity to “skip a payment” without informing consumers that doing so would result in “interest short” situations. Defendant failed to provide borrowers with material information necessary to avoid such extra charges.

J. Balloon payments: Plaintiffs allege that Defendant extended credit to borrowers on terms that would eventually require balloon payments, without disclosing to borrowers the existence or amount of the balloon payments.

K. Payoff information: Plaintiffs allege that Defendant failed to provide timely payoff information, which impeded borrowers’ efforts to seek refinancing elsewhere.

L. Non English language documentation: Plaintiffs allege that Defendant engaged in unfair and deceptive practices by failing to provide meaningful descriptions of loan terms to non-English-speaking borrowers.

M. Net tangible benefit in loan refinancing: Plaintiffs allege that Defendant engaged in the practice of refinancing its own or other loans, thereby imposing additional fees and costs, where the new loan provided no net tangible benefit to the consumer.

Do we see much difference between what Household International did and what Ameriquest did? Not really. Knowing what happened to Household did Ameriquest simply not care, or did they fail to exercise a good system of checks and balances? After all, George Bush nominated Ameriquest founder Roland Arnall as the next ambassador to the Netherlands. Arnall is the founder of Ameriquest Mortgage Co.. Only then did the company agree to settle charges against it.

This completes our document which speculates about HSBC Bank plc purchasing Ameriquest. Comments are invited. This document was produced on May 2, 2006.