Debt Consolidation Plan Backfires

What tends to irk lawmakers the most about predatory lending is the good intentions people have when signing up to borrow money in the first place.

Take the story of Paul and Mary Lee Satriano. In the spring of 2000, the St. Paul, Minn., couple took out a car loan with Beneficial Loan and Thrift, a subsidiary of Prospect, Ill.-based Household Financial. Beneficial solicited the couple for other offers, including using equity in their home to pay off debts.

More Debt, Higher Mortgage Payment?

The Satrianos decided to sign up for Beneficial's debt consolidation plan to pay off their credit cards by boosting the mortgage on their home. They received a loan proposal in the amount of $106,000 — $105,600 to pay off four existing accounts and $400 in cash. The initial proposal did not include any fees or closing costs, the Satrianos said.

According to their testimony, which was presented today to the Senate Banking Committee in Washington, the Satrianos were charged $9,989 in settlement costs, and an additional $4,866 for credit life insurance, bringing their grand loan total to $119,726 — 113 percent above the actual value of their home. The Satrianos didn't realize what had happened until they received their first bill from Beneficial.

What's more, Beneficial paid out $1,191 for the Satrianos' credit cards but declined to pay the remainder of their outstanding debts. And it calculated a monthly mortgage payment $260 higher than they had before, thanks to thousands of dollars in fees and insurance costs that the couple were not told about up front.

Further, Beneficial ultimately arranged an 11.9 percent interest rate on the couple's mortgage, a significantly higher rate than a first-tier bank or mortgage company would charge.

A Difference of Opinion

As it now stands, the Satrianos say they will have to pay a prepayment penalty of almost $7,000 to Beneficial in order to refinance their mortgage with another company. That would bring their total loan payoff to about $128,000 — $12,000 more than the initial amount they wanted.

"What we're trying to do is get these predatory lenders to be fair with everybody," said Paul Satriano. "It's bad enough when you have good credit, and then you go someplace like that to try to better your situation and they still sock it to you."

For their part, representatives of Household Financial dispute the Satrianos' claims. The rules and policies surrounding the loans and insurance the Satrinaos applied for and received were clearly explained, and the couple signed off on all the appropriate forms and documentation, according to Household Financial spokesman Craig Streem.

Household Financial also disputes the figures in Paul Satriano's testimony.

"We are a 123-year-old company with a $32 billion market cap," Streem said. "We simply do not do business like that."