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SAN FRANCISCO, CA – Consumers Union welcomed the announcement that the sub-prime lender, First Alliance Corporation, last week terminated its application to acquire Standard Pacific Savings FA, a unit of Standard Pacific Corporation. By acquiring the savings bank, First Alliance would have expanded its market for its home-secured credit card, which Consumers Union believes is a dangerous product. First Alliance withdrew its application before the Office of Thrift Supervision (OTS) while the company was under close scrutiny by consumer organizations and legislators.
Consumers Union had urged the OTS to deny the application. In addition, Congressman Barney Frank (D-MA) urged the OTS to investigate allegations raised by pending Bay Area lawsuits against the company. He also urged the OTS to investigate Consumers Union’s concerns that the company aggressively promotes its high-interest home equity loans and home equity based credit cards to people least able to afford, understand or resist its offers.
First Alliance, based in Irvine, California, recently became one of the first companies in the nation to offer a home-secured credit card. That card puts home equity at risk for any credit card purchase, including casual, insignificant purchases such as movie tickets. First Alliance currently offers the card through an affinity arrangement with Fidelity Federal Bank, F.S.B. If First Alliance had acquired Standard Pacific Savings, it could have eliminated that arrangement, increased its direct control over and profit from the credit card, and expanded its credit card market. First Alliance’s current and target market for the credit card consists of primarily low-income, inexperienced credit card borrowers with accumulated home equity.
“We’re relieved that First Alliance didn’t have this opportunity to expand its market for its dangerous new product, the home-secured credit card,” said Norma Garcia, staff attorney with Consumers Union’s West Coast Regional Office. “The company is named in several Bay Area lawsuits involving serious allegations of fraud and misrepresentation. This calls into question the company’s motives in issuing an expensive, risky product to a vulnerable borrowing population.”
Given the nature of the product and the target market, Consumers Union is concerned that the company’s home-secured credit card will lead to a high incidence of foreclosures.
These developments surface at a time when the entire sub-prime lending industry is under the careful watch of government regulators and policymakers. The Federal Trade Commission (FTC) and the Department of Justice have begun investigations into numerous allegations of deceptive advertising and questionable business practices. The Senate Committee on Aging, headed by Senator Charles Grassley (R-IA) has scheduled hearings in March on predatory lending and the sub-prime lending industry.
“We applaud these efforts to examine segments of an industry that has preyed on the vulnerability of unsuspecting homeowners urged into loans they can’t afford,” Garcia said. “We are confident that if First Alliance had not withdrawn its application, the OTS would have had sufficient cause to deny the acquisition. This is a victory for consumers.”
The Proposition 103 Enforcement Project is the watchful eye over insurance prices and practices -- core issues that affect the economy and pocketbooks of consumers and businesses alike. Using 103's authority for consumer participation in insurance regulatory matters, our attorneys and experts successfully challenge unfair insurance premiums and practices.
