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player ready...Wall Street seems unconcerned about the effect a new lawsuit against Household International Inc. will have on the company’s earnings.
Shares fell just 27 cents, to $57.43, in twice its usual volume Thursday, when the national homeowner’s group Acorn filed a widely publicized lawsuit in Chicago accusing the Prospect Heights-based consumer finance giant of predatory lending practices, including overcharging customers and making it difficult for them to refinance loans. On Friday, shares finished 43 cents lower, at $57.
Predatory lending has become a hot topic in the past couple of years, as stories have proliferated about consumers being bilked and losing their homes because of loans carrying onerous fees, interest rates and other terms.
Several states, including Illinois, have tried to combat the problem with new regulations or legislation, and lawmakers in Washington renewed the fight last week with the introduction of a bill already being called the “Predatory Lending Consumer Protection Act of 2002.”
Household is the nation’s largest lender to people with bad credit. Many of these companies acknowledge there are unscrupulous lenders within the industry, but several stock analysts have said Household is not one of them.
“We do not believe that lawsuit represents a material financial risk to Household,” finance industry analyst Moshe Orenbuch wrote Friday in a research report for Credit Suisse First Boston.
Pointing to Household’s recent initiatives to prevent lending abuses at the company, Orenbuch said the lawsuit does not present “any risks to Household’s business practices.”
“We believe that Household has avoided the missteps of many industry peers because of its centralized process,” wrote Orenbuch, who has a “strong buy” rating on Household.
The Acorn suit seeks unspecified actual and punitive damages for borrowers across the country, which could total more than 175,000 people.
Household’s practices–which include giving borrowers a choice between prepayment penalties and a higher interest rate, a simplified one-page disclosure, a 3 percent cap on origination fees and a 2-point cap on discount points–already comply with many of the provisions in new legislation introduced last week, Orenbuch wrote.
The bill, introduced by Senate banking committee Chairman Paul Sarbanes (D-Md.), follows three hearings he has held on predatory lending.
Bank One effort blasted: In response to Bank One Corp.’s renewed lobbying for legislation that would make it more attractive for the company to consolidate its charters in Illinois, the Community Bankers Association of Illinois issued a 12-page report decrying the Chicago-based banking company’s attempt to have a measure passed that would apply solely to itself.
“House Bill 1949 is about one (and only one) financial institution attempting to use the Illinois General Assembly to help streamline that financial institution’s ability to make loans that include prepayment penalties and fees not currently allowed under Illinois law,” the CBAI wrote.
Bank One officials, who have hired former Gov. Jim Thompson to lobby for the bill, argue that, under its Ohio charter, the bank already operates without the Illinois restrictions. The new legislation would allow the bank to move its charters here, they say, without being subjected to stricter regulations.
“The legislation intentionally seeks to maintain today’s competitive environment exactly as it is, allowing all banking companies to continue to do business as they do today,” said spokesman Thomas Kelly.
Bank notes: A study by Bank One found that 44 percent of midsize-business owners have more than half of their personal wealth invested in their businesses. Owners typically hold only one other type of asset besides their company ownership, according to the study, which was conducted by Harris Interactive with 251 business owners.
– Investment bank Lazard hired David Kurtz, formerly a partner in the Chicago office of Skadden Arps Slate Meagher & Flom LLP, as a managing director in its Chicago office.