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How HFC and Beneficial financing really works - the secrets they don't want you to know

For years Household Finance had a reputable company with decent loans and a fair reputation. Enter William F. Aldinger as CEO, and the company changed. Upselling of all products was pushed on employees, and in some cases customers were sold even if they turned down the product. Insurance was packed into loan packages. High fees, points, and questionable appraisals became the norm. Soon Aldinger's Household International, including Household Finance (HFC) and Beneficial Finance became the classic predatory lender. Here is how they still do it, and the secrets they don't want you to know:

Even as HSBC Finance, loans are written with a long amortization schedule, but the contract stipulates a balloon payment will pay the contract in full in a certain number of years. For example a home loan may be amortized over 40 years but it must be paid off in 30. For second mortage loans they may be amortized over 20 or 30 years, but they must be paid off in 10 or 11 years.

What is the net result, and why do they do it? When the amortized period is longer than the payback period the payment will not pay down the loan. If nothing goes wrong, such as late payments, interest accrues faster than the payment can pay down the loan. Many second mortgages are structured as daily interest loans such as credit card loans. In both cases your balance after five years will be more than you borrowed in the first place.

Simplified version:
They loan you $15,000 and the payment is lower than competitors quoted payments. That is the hook.

Your $15,000 loan is amortized over 30 years, so the payment is low as if you had 30 years to pay them back.

In the fine print of the contract it says you must pay the full amount due in the 120th month. Nothing is said about your low monthly payment nor being able to do that.

Nobody tells you about negative amortization, and nobody tells you that you will owe more than you borrowed, even after you made payments to them for 10 years (120 months).

These are the perfect "loans" for a predator - they loan you money, you pay them for the entire period, and to pay off the loan you must pay them the entire amount again, plus interest.

If you can't make the final payoff they take your home through foreclosure, making even more money when the home sells.

The predator makes money, lawyers make money, the auctioneer makes money, title companies, etc. And if the home does not bring the full amount at auction you get another bill for the difference.

When the Securities and Exchange Commission (SEC) issued a cease and desist order against Household International they were alleged to be rolling over (bringing current) over $1 billion in bad loans every month.

In those cases Household kept increasing the customers balance due by adding the original monthly payment amount, plus interest, to the back end of the loan.

This is just one of our articles referencing HSBC complaints about mortgages, Bestbuy, credit cards, auto loans, fees, and late payment processing.

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Notes

 

HSBC Watch monitors HSBC customer trends for possible violations of Regulation Z and other possible illegal actions. We use your individual HSBC complaints and merchant complaint reports to perform trend analysis. We are not associated with HSBC, Household International, or their merchants. Some items are used by permission granted in the Fair Use guidelines of the 1976 U.S. Copyright Act. HSBC Watch was formerly known as Household Watch and hosted at www.householdwatch.com and is now part of the Lender Watch network

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