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Attorney General Lockyer Announces $325 Million Settlement with Ameriquest to Resolve National Predatory Lending Case
49-State Settlement Will Compensate Consumers, Reform Ameriquest Business Practices
(LOS ANGELES) – Attorney General Bill Lockyer today announced a $325 million, 49-state settlement with Orange County-based Ameriquest that will resolve predatory lending allegations against the nation’s largest sub-prime lender by providing consumers $295 million in restitution and requiring sweeping reforms of the firm’s business practices.
“Our economic system cannot function properly unless businesses treat consumers fairly and honestly,” said Lockyer. “Unfortunately, our investigation found that Ameriquest’s prior lending practices too often violated those principles and harmed families. This settlement provides a good measure of justice by compensating victims of these previous practices and helping to ensure there are no victims in the future. I’m pleased Ameriquest has entered this agreement.”
Today’s development culminates more than two years of investigation by the Attorneys General, state lending regulators and local prosecutors, and more than one year of settlement negotiations. Law enforcement officials and regulators received hundreds of complaints from Ameriquest customers across the country. The ensuing investigation uncovered widespread consumer protection problems in areas governed by the settlement. The alleged improper practices included: inadequate disclosure of prepayment penalties, discount points and other loan terms; unsolicited refinancing offers, without adequate disclosure of prepayment penalties; improperly influencing and accepting inflated appraisals; and misrepresentations regarding consumers’ credit ratings, and the availability and cost of future refinance loans.
In addition to the $295 million for consumer restitution, the settlement requires Ameriquest to pay $30 million to the settling states to cover their costs, and to fund consumer education and enforcement programs. The agreement ranks as the second-largest predatory lending settlement in history, right behind the $484 million agreement reached between most states and Household Finance Corporation in 2002.
Of the $295 million in restitution, $175 million will go to eligible customers who obtained mortgages from January 1, 1999 through April 1, 2003, the date Ameriquest changed its loan pricing practices to eliminate some elements that misled consumers. Consumers’ payments from the $175 million will be based on a formula set by the settling states and be distributed through a nationwide claims process.
Another $120 million in restitution will be allocated to the settling states based on the percentage of total Ameriquest loans, measured in dollars, held by consumers in each state.
The second restitution pot of $120 million will compensate Ameriquest customers who obtained mortgages between January 1, 1999 and December 31, 2005. Each settling state will determine which customers in its jurisdiction are eligible to receive money from this restitution fund. The states can use some of their share of the $120 million to provide additional compensation to Ameriquest customers who receive payments from the $175 million pot.
Each state’s exact share of restitution funds has not been determined. But California will receive the largest portion because, at 108,031 loans valued at $23.3 billion, it had the highest Ameriquest loan volume in the nation from 1999-2005. Depending on how many eligible consumers participate and other factors, Lockyer said Californians could receive as much as $47 million or more. But he stressed that is a rough estimate.
The settlement also aims to protect future Ameriquest customers through provisions that mandate wide-ranging reforms of the lender’s business practices. For example, the settlement requires full, clear disclosure regarding interest rates, discount points, prepayment penalties and other loan or refinancing terms.
Another major reform overhauls Ameriquest’s appraisal practices. These provisions remove branch offices and sales personnel from the appraiser selection process, institute an automated system to choose appraisers from panels created in each state, limit Ameriquest’s ability to get second opinions on appraisals, require Ameriquest to audit appraisers’ work, and prohibit Ameriquest employees from influencing appraisals.
Other injunctive relief provisions: mandate accurate, good faith estimates; require the same interest rates and discount points for similarly-situated consumers; cap prepayment penalty periods on variable rate mortgages; prohibit refinancing solicitations in the early years of variable rate mortgages, absent some evidence the borrower is considering refinancing; require Ameriquest to use independent loan closers; prohibit Ameriquest from encouraging prospective borrowers to misstate income sources and amounts; prohibit Ameriquest from paying sales personnel incentives to include prepayment penalties in mortgages; and require Ameriquest to adopt policies to protect whistleblowers and facilitate reporting of improper conduct.
Additionally, the agreement provides for the appointment of an independent monitor to oversee Ameriquest’s compliance with the settlement terms. The monitor will have broad authority to examine Ameriquest’s lending operations, including access to documents and personnel. The monitor must submit annual compliance reports to the Attorneys General at the end of 2006, 2008, 2009 and 2010, and on June 30 and December 31 in 2007. Ameriquest will pay the monitor’s costs.
Aside from Lockyer and the Attorneys General of 48 other states and Washington D.C., the settlement was signed by lending regulators in 45 states, including the California Department of Corporations (DOC). In California, the district attorneys in Alameda, Los Angeles, Monterey, Merced, San Francisco and San Mateo counties investigated the case with Lockyer and the DOC, and also signed the agreement. The Ameriquest parties to the settlement include parent ACC Capital Holdings Corporation, and subsidiaries Ameriquest Mortgage Co., Town & Country Credit Corporation and AMC Mortgage Services, Inc.
PLEASE NOTE: Lockyer, the DOC and district attorneys on March 21, 2006 filed the California complaint and settlement in Alameda County Superior Court. The court approved the settlement the same day. The complaint and court-approved settlement are attached.