Marylanders stand to receive more than $7 million from Ameriquest Mortgage Co. as part of a $325 million settlement announced yesterday between the subprime lender and 49 states that accused it of predatory practices.
Ameriquest, a subsidiary of ACC Capital Holdings Corp. in Orange, Calif., also agreed to revise its lending practices.
Regulators across the country applauded the consumer protection settlement, the second largest ever on both state and federal levels. The largest was Household International Inc.'s $484 million settlement in 2002 for predatory lending practices, which also involved Maryland.
Ameriquest was "taking advantage of people who were in need of refinancing or consolidating debt. They certainly didn't treat them the way they should have been treated," said Maryland Attorney General J. Joseph Curran Jr. Consumers "got further in debt in some cases."
The fast-growing subprime lending industry targets people who, for one reason or another, don't qualify for traditional loans and charges them higher interest rates. Typically, the loans are then resold on the secondary market.
The settlement announced yesterday resolves a multistate, two-year probe of Ameriquest practices from January 1999 until the end of last year. It includes loans made in the District of Columbia and all states except Virginia, where Ameriquest didn't conduct business. Ameriquest made 25,000 loans in Maryland from 1999 through last year.
State regulators accused Ameriquest of a long list of practices that harmed consumers. The company culture was to "sell, sell, sell," Iowa Attorney General Tom Miller said in a telephone conference with reporters yesterday.
Ameriquest employees routinely misled consumers about interest rates, discount points and prepayment penalties and promised loan terms that they failed to deliver, regulators said.
Regulators also said company employees inflated home appraisals and borrowers' incomes so consumers could qualify for mortgage loans. In some cases, the company charged consumers higher fees and interest rates than others in similar financial situations.
While Ameriquest said it regretted any lapses by employees, the company did not admit any wrongdoing.
"We've always had zero tolerance for inappropriate practices," said Aseem Mital, chief executive officer of ACC Capital Holdings, in a written statement. "Where we've found mistakes, we've worked hard to fix them. We're now putting in place even more stringent standards and institutional safeguards to ensure that our practices meet or exceed our customers' expectations."
Under the terms of the settlement, $295 million will go toward consumer restitution and $30 million will cover the states' legal fees and other costs associated with the case.
The consumer restitution will be divided into two pots.
The first, totaling $175 million, will go to consumers who paid higher fees and interest rates between January 1999 and April 2003, when the company changed its pricing model, Iowa's Miller said. Consumers who took out 240,000 loans will receive at least $600 each. In Maryland, 3,500 consumers who were victims of higher fees and rates will share about $2.1 million.
The remaining $120 million will go to the states to compensate consumers who may have been harmed by other Ameriquest practices from 1999 through 2005. Nationally, as many as 485,000 loans are affected, Miller said. Maryland will receive $4.9 million from this pot of money, and will review all 25,000 Ameriquest loans made here to determine who shall get the money, Curran said.
Maryland officials will contact consumers entitled to restitution, Curran said. The process may take several months.
The settlement must be approved by judges in the states. By accepting the restitution from the settlement, consumers will waive their right to any private class action lawsuit, regulators said.
Ameriquest agreed to make other changes, including giving borrowers a clear one-page description of loan terms, having borrowers sign a statement that the income information they gave Ameriquest is correct and requiring staffers to follow a script to assure accuracy. It also agreed to independent monitoring of its compliance with the settlement.