Sub-prime Lender Agrees to Pay $350,000 Civil Penalty to Settle Charges of Violating Federal Lending Laws

Action Loan Company, Inc., of Louisville, Kentucky, and its owner and president, Gus Goldsmith, have agreed to pay a $350,000 civil penalty and up to a total of $37,000 in consumer redress as part of a joint settlement with the Federal Trade Commission and the Department of Housing and Urban Development resolving allegations that they violated a host of federal lending and consumer protection laws when making loans secured by real or personal property to consumers. The FTC charged the defendants with violating the Truth In Lending Act (TILA) and its implementing Regulation Z; the Equal Credit Opportunity Act (ECOA); the Fair Credit Reporting Act (FCRA); the Credit Practices Rule (CPR); and with violating Section 5 of the FTC Act. HUD charged the defendants with violating the Real Estate Settlement Procedures Act of 1974 (RESPA) by receiving kickbacks for the referral of loans. The proposed settlement would also prohibit the defendants from violating any provisions of the TILA and Regulation Z, the FTC Act, the ECOA, the FCRA, the CPR, and the RESPA in the future.

The FTC's complaint charges the defendants with violating:

• the TILA and Regulation Z by failing to include the cost of accident and health insurance in their disclosure of the finance charge and annual percentage rate (APR) of a consumer loan;

• Section 5 of the FTC Act by misrepresenting that consumers were purchasing only credit life insurance, when in fact they were also purchasing accident and health insurance;

• the ECOA and the FCRA by failing to provide consumers with required adverse action notices; and

• the Credit Practices Rule (CPR) by routinely including "waiver of exemption" and "homestead exemption waiver" provisions in their credit contracts.

The complaint also contains an allegation brought by the Department of Housing and Urban Development (HUD) that Gus Goldsmith violated the Real Estate Settlement Procedures Act (RESPA) by receiving illegal kickbacks for the referral of loans.

The proposed consent decree would prohibit the defendants from violating the CPR, ECOA, Regulation B, FCRA, TILA, Regulation Z, the FTC Act, and RESPA, and would require them to pay $ 350,000 in civil penalties for the alleged CPR, ECOA, and FCRA violations. In addition, the proposed settlement would require the defendants to extinguish any security interests in household goods, and to nullify the prohibited homestead exemption waiver provision contained in all notes and contracts.

The order also provides redress to two categories of consumers: (1) up to $25,000 to those consumers who purchased undisclosed accident and health insurance in connection with their loans, in violation of TILA and Regulation Z ; and (2) approximately $12,000 in redress to certain consumers whose loan transactions were charged an illegal referral fee or otherwise subject to illegal fee-splitting arrangements.

Finally, the proposed settlement contains a number of recordkeeping and reporting requirements to assist the FTC in monitoring the defendants compliance with the terms of the settlement.

The complaint and proposed consent decree were filed today in the U.S. District Court for the Western District of Kentucky, in Louisville, by the Department of Justice at the request of the FTC. The Commission vote authorizing the referral of the complaint and proposed settlement to DOJ was 5-0.

NOTE:  This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees are subject to the court's approval and have the force of law when signed by the judge.

Copies of the complaint and proposed consent decree are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Rolando Berrelez,
Midwest Region, Chicago
312-960-5609  

Michelle Chua,
Bureau of Consumer Protection
202-326-3248

(Civil Action No.: 3:00CV-511-H)
(FTC File No.: 992 3119)