Of the many companies that do provide mortgages and other financial services to individuals, Household Finance Corp was one of the oldest and largest. The company was a descendant of Frank Mackey’s business started back in the 1870’s. By 1905 the company was one of the first to get into the field of consumer credit. His company was one of the first to create installment payment systems and by 1908 had expanded from the Chicago area to nationwide. Household Finance Corp was created in 1925 as a grouping of these offices. By the end of the 1920’s, Household Finance Corp ranked as one of the largest financial companies in the country.
During the 1990’s, Household Finance Corp came under investigation primarily due to complaints from clients who borrowed money through the company. Many of them argued that they were misled into agreeing to loans different than they thought and more expensive than they thought. The investigation focused on the company’s failure to properly inform clients about the dangers and expenses of each type of loan, therefore taking advantage of borrowers. Borrowers thought their interest rates were as low as 7 or 8% when in reality they were closer to 15%. Eventually it was found that this violated consumer protection, among other laws, and resulted in the company paying back millions of dollars.
This case study is important to understanding finances because it has helped shape lending practices for years to come. Household Finance Corp has agreed to shift its lending practices and adapt to new regulations. This case puts into the public’s eyes the need to have good regulation of financial institutions and to properly inform consumers before they agree to the terms of loans. It also brings to light how companies many try to trick you into paying more than you need to, so you should always read the fine print and all of the details before you ever agree to any terms.
Ashley Russell is a North Carolina native, hailing from Kings Mountain. She is a diehard Carolina fan who loves to watch her team play in any sport—a Tar Heel born and bred. She loves to read and write in her free time. Since high school, she has known she wanted to pursue a career that involved both reading and writing. However, she has recently discovered a love for computers, so she also hopes to incorporate them into her career. She spends her free time tutoring k-5 students in reading and writing in the Chapel Hill area. She is a second-year captain of a Relay for Life team and a participant in Dance Marathon 2011. She is also the online webmaster for the Blue & White magazine based out of Chapel Hill.
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