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Household's epiphany on loans comes amid pressure

Household International is obviously a very proud corporation. The parent of such familiar lenders as HFC and Beneficial Finance, Household is a big moneymaker with a hefty stock price that does not take kindly to criticism of the way it lends money to people with less-than-stellar credit.

Household does not like allegations it charges high-interest-rate loans, unnecessary fees or high-priced credit life insurance add-ons that can result in overwhelmed borrowers losing their homes.

Household does not like suggestions that some of its lending practices to the subprime (less creditworthy) consumer market need an overhaul.

Household, known for citing its distaste for "unethical lending" in press releases, does not like being called a predatory lender in public debates.

So it came as a watershed event when Household conceded some high ground. Last week, the company said it would stop selling a controversial single-premium credit insurance product that it has charged some of its many customers for years.

Credit insurance pays off a loan if a borrower dies or becomes disabled. But a single-premium policy requires borrowers to pay for the entire cost of insurance policy when they obtain the loan. In effect, most borrowers must borrow extra money (which is then added to the amount of their new loan) upfront to pay for the insurance policy.

The extra cost is big. Single-premium credit life coverage of $50,000 for five years costs more than $6,800 over the course of a 30-year mortgage. A 10-year policy paid on a monthly basis costs about $1,020.

Critics say such single-premium products gouge customers least able to afford it.

Despite mounting pressure, Household indicated early this month that it had no plans to drop the highly profitable insurance product.

"As long as single-premium insurance is something customers want and regulators say it's legitimate, we will continue with business as usual," Household spokesman Craig Streem said July 3. "There's no reason not to."

Eight days later, Household flip-flopped.

The lender, based in Prospect Heights, Ill., said July 11 it will no longer sell single-premium credit insurance on all loans secured by real estate. In its place, Household will offer a fixed monthly premium insurance product.

Good move. But why such a reversal?

Was it because a low-income neighborhood activist group called Acorn has targeted the company nationwide with protests (that included Household's annual shareholders meeting in Brandon in May) and regulatory complaints? Nope, Household says.

Or because the larger Citigroup, parent of another major subprime lender, stopped offering the very same product June 28, only 13 days earlier? Not a factor, Household says.

Or because Philadelphia, Chicago and other northern cities and states are passing laws banning predatory lending practices that include single-premium credit insurance? Not at all, Household says.

Or because such powerful industry players as Fannie Mae (Federal National Mortgage Association) will no longer buy mortgage loans that carry single-life premium credit insurance? No way, Household says.

Or because the Senate Banking Committee, under the new leadership of Sen. Paul Sarbanes, D-Md., plans to hold hearings on predatory lending? (Sarbanes also plans to introduce legislation to curb unfair mortgage lending practices in the industry.) Not an issue, Household says.

Hmmm. Guess it was just a big coincidence.

Household consumer-lending unit president Gary Gilmer said his company had planned for a year to introduce credit insurance with monthly premiums.

"Our decision to discontinue sales of the single-premium product is a natural outgrowth of that strategy," he said.

Gilmer blamed media coverage for souring consumer attitudes about the product. But he credited Household's new stance to working with the Washington-based National Community Reinvestment Coalition. The umbrella organization of advocacy groups is dedicated to increasing loans but reducing predatory lending tactics in poor communities.

Household is the last of the major subprime lenders to do away with single-premium credit life insurance, critics say.

Citigroup, which owns rival subprime lender Associates First Capital, says the public criticism of single-premium credit life insurance led to its June decision to drop the product.

Citigroup says it will phase out the insurance and replace it with a product sold separately from its mortgages and billed monthly over the five-year life of the insurance.

Citigroup says it also will offer existing single-premium customers a chance to switch to another product.

Not so at Household. Customers with single-premium insurance through Household will keep paying for that expensive insurance, since they are already bound by contract.

At proud Household International, change happens one step at a time.

_ Robert Trigaux can be reached at or (727) 893-8405.