can’t sue me, there’s nothing you can do, you signed the papers,” he remembers being told.
“I said to him, ‘You snookered me on that 7.2 percent interest. But you ain’t snookering me on this line of credit at 19.9 percent.’” Myers was resigned to paying the monthly amount on the new mortgage; he felt he had no one to blame but himself for agreeing to a lousy deal. But he wouldn’t pay a dime on the home equity loan. “He tells me, ‘You have to pay.’ And so I says, ‘We’ll see about that.’”
Myers phoned his state senator, where an aide informed him that a lender can charge basically whatever he wants so long as the terms are spelled out in the contract. He heard pretty much the same from an aide inside the governor’s office, who told him that even if everything he said was true, it wasn’t against the law. Myers phoned the White House. He tried reaching the secretary of the U.S. Department of Housing and Urban Development (HUD) and the U.S. attorney general. He ranted at random Beltway bureaucrats who seemed indifferent to what had happened to him. But mainly he pestered the people at Household.
Myers could have paid his bill by mail, but then he would have denied himself the pleasure of stopping by the Household office before work every other week. “I enjoyed seeing ’im,” Myers said of his broker. “I enjoyed sticking it to him for the screwing they took me for.” He’d park right out front and wait for them to open and invariably be the first person in the door. “I’d basically raise hell every time I’d go in there,” he said. “I’d razz him for being a crook; I’d talk about what a job they did on me. I didn’t care who was in there. I’d just give him what for.
“I’ll be honest with you,” Myers said. “I’m very, very stubborn. I try and be fair about things. But don’t tick me off. Just don’t tick me off.”
Among those Myers called to complain about Household was a local advocacy group called the Miami Valley Fair Housing Center (Dayton is located on the Great Miami River). Myers is white and the Fair Housing Center was a group known for fighting the racial discrimination that denied homes to qualified black buyers in the Miami Valley, but he figured someone there would know something about abusive lending practices.
Actually, the mission of the Fair Housing Center was already starting to change by the time of Myers’s call. Just as strong currents of change were beginning to flow through a newly deregulated financial world, the strategies of housing activists were shifting with them. It was no longer a matter of lenders refusing to make loans in certain neighborhoods; rather, it was now something like its opposite: Lenders were now targeting those same neighborhoods and aggressively peddling mortgages and home equity loans on terms that left borrowers worse off than if they had been denied a loan in the first place. This new scourge had first shown itself in the city’s black precincts but quickly spread to its white working-class neighborhoods and to the crumbling first-ring suburbs. Myers didn’t realize it at the time but his hometown had become a hotbed in the fight against predatory lending, and Fair Housing’s executive director, Jim McCarthy, was one of the people pushing hardest for a confrontation with these lenders. The county had recently given McCarthy and his allies $600,000 to fund a public awareness campaign to warn people about these abusive loans and to create a group they were calling the Predatory Lending Solutions Project to help people untangle themselves from situations like the one that had ensnared Tommy and Marcia Myers.
Fair Housing opened more than 650 case files in 2001 and nearly 900 more the next year. McCarthy invited me to go through the center’s files, where I found the names of more than seventy-five people who had contacted their organization about a Household loan. Not every person who showed up in their offices was a victim, McCarthy said, but many shared tales not all that different from the one that Tommy Myers told. He remembered Myers— remembers liking him and feeling great sympathy for what had happened to him—but called up his file to refresh his memory. He filled me in on details that Myers had left out, such as the stiff prepayment penalty Household had written into his loan terms—another staple of abusive mortgages. Just as it had cost Myers dearly for the privilege of taking out a Household loan, it would cost him plenty to get out of the loan inside of five years. Myers also didn’t mention that Household had paid a subsidiary of itself to do the appraisal on his home and then stuck it on his tab. Technically that’s not illegal but it’s certainly not the accepted practice, either. Phone logs for the organization showed that Myers had initially contacted the Fair Housing Center to ask whether it was true that there were no predatory lending laws in Ohio. He was told that there weren’t.
McCarthy could sympathize. Since the late 1990s, he and his allies had been trying to alert people in the state capital, Columbus, about the destructive practices of seemingly legitimate subprime lenders like Household Finance. “We were met by this very arrogant ‘Who are you, you’re just a bunch of community organizers, we know and you don’t’ attitude,” McCarthy said. For the time being at least, there would be no help from the state or, for that matter, the federal government.
In the meantime, Fair Housing beat the hustings in search of local lawyers willing to take on the cases of those believing themselves to be victims of predatory loans. Among the few who answered the call was Matthew Brownfield, an attorney who lived in Cincinnati, one hour to the south. Brownfield filed a class-action suit against Household in November 2001, listing the Myerses among a small group of named plaintiffs. The basis of the lawsuit was the charge that the company had violated federal mortgage disclosure laws and therefore the loans should be rescinded. The suit claimed more than one thousand potential plaintiffs. Gary Klein, who as a staffer for the National Consumer Law Center in Boston had helped write the materials that lawyers across the country use when litigating these types of cases, helped Brownfield. That gave Myers a tickle: A big-time lawyer from Boston was helping him go after Household.
Brownfield encouraged the Myerses to remain in the house. Household—perhaps because the Myerses had sought legal protection—had yet to take action against them over their failure to pay on the home equity loan. Don’t worry about the main loan, either, he advised the couple. Pay a set amount each month into an escrow account I’ll help you set up. That way you can demonstrate good faith to a judge.
Myers, however, was thinking about the aggravation this whole mess was causing Marcia, who was still recovering from open-heart surgery. So at the end of 2001, six years after they had bought their first home but not five months after they walked into that Household Finance office in Huber Heights, the Myerses walked away from their house and mortgage and moved into a trailer park in a suburb south of Dayton. The place wasn’t too bad, they said. Space was tight but they had access to a community swimming pool. There were trees, the grounds were well maintained, the neighbors were nice. All in all, it didn’t seem too terrible a place to recover while waiting for the courts to rule on their claim.
The Myerses wouldn’t need to wait terribly long; the company’s aggressive new lending policies were sparking lawsuits all across the country. Household Finance was facing legal action for its alleged deceptive practices in Illinois, California, Oregon, New York, and Minnesota. The community organization ACORN had filed a national class-action suit against the company, charging it with widespread consumer fraud, and AARP joined a similar class-action suit filed against the company in New York.
The company was also attracting the attention of regulators around the United States, starting with Christine Gregoire, then the attorney general of Washington state. One case that spurred Gregoire into action was that of a seventy-year-old Bellingham man who had been talked into buying a credit insurance policy limited to those sixty- five or younger. There was also the family of five in Auburn, paying $900 more a month than they had been paying before they turned to a Household salesman for a refinance. A group of attorneys general began meeting with company officials in the summer of 2002 and a joint settlement was announced that fall. Household agreed to $484 million in fines—the largest consumer fraud settlement in U.S. history—and assented to a series of reforms, including a 5 percent cap on up-front fees and utilizing “secret shoppers” whom the company would hire to police its own sales people. William Aldinger even claimed he was sorry after a fashion. In a written statement, he apologized to the company’s customers for “not always living up to their expectations” but did not admit to any specific wrongdoing.
The $484 million settlement sounded enormous—until one did the arithmetic. The money was to be divided among the roughly 300,000 people in forty-four states who had refinanced with Household between 1999 and the fall of 2002. Even forgetting about legal fees and the money set aside for compliance, that worked out to an average of $1,600 per person. Household, by contrast, had logged sixteen straight record quarters in a row. In 2001 alone, the year the Myerses signed their deal, Household reported $1.8 billion in profits. The company had made big promises but its executives told analysts that they didn’t expect its consent agreement to cost them more than ten cents a share over the coming year. Household’s share price spiked by one-third in the forty-eight hours after news of the settlement spread. Investors seemed relieved that the penalty hadn’t been larger or the reforms more sweeping.
The national settlement presented the Myerses with a difficult decision. The state attorney general had
