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Landmark Predatory Lending Suit Settled

7-Year Fight Can End With Judge's Approval

By Sandra Fleishman
Washington Post Staff Writer
Thursday, February 24, 2005; Page E01

Government regulators have reached a settlement of a long-running case against Capital City Mortgage Corp., a Washington-based company whose home-lending practices triggered a national assault on abusive lending.

In papers filed yesterday in U.S. District Court, Capital City, after seven years of litigation by the Federal Trade Commission, agreed it would never make consumer loans that use a house as security and that it would disclose fees and terms on future commercial loans. Its lawyers say the company no longer makes home loans, which were much of the reason for the FTC suit.

The agreement, which still must be approved by U.S. District Judge Gladys Kessler, would also require Capital City to pay $750,000 over the next two years to the FTC for wronged consumers, far less than the $11 million that the agency had sought. The settlement is expected to be announced today.

Capital City's practices helped trigger a national call for consumer protections, according to government regulators and fair-housing activists. "Whenever one wants to pull out the classic example of what is a predatory practice, they turn to this case," said John P. Relman, a private D.C. civil rights lawyer who helped bring a separate suit against the firm that was settled for eight borrowers in 2001.

The Capital City case, said Relman, was "the first in which a court ever held that if a lender targets minority communities for unfair loans, you violate the Fair Housing Act. . . . That has made it possible for civil rights advocates and consumer advocates to work together to solve a common problem."

Capital City was alleged to have used fraud and deception to put minority homeowners with credit problems into loans they couldn't afford. The high fees and high-interest penalties reportedly sent many into foreclosure. The company still operates in a rowhouse on 11th Street NW making commercial loans.

It isn't clear how many borrowers will seek redress; the company has told the agency that it made about 1,400 residential loans from 1979 to 1998, when the FTC filed suit. If all 1,400 were to make claims, each would get about $536.

Sources close to the negotiations, who spoke on condition of anonymity because the settlement had not yet been announced, said the amount of money the FTC will receive reflects Capital City's claim that its founder, Thomas K. Nash, was insolvent when he died in 2002.

Philip M. Musolino, the lead attorney for Capital City and for Nash's estate, said yesterday that he could not comment on the agreement until Kessler had approved it.

In the past, the company has denied any wrongdoing. In the settlement papers filed yesterday, the defendants do not admit wrongdoing or liability.

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