U.S. District Judge Gladys Kessler has approved the settlement of a groundbreaking predatory lending case against Washington-based Capital City Mortgage Corp.
The settlement ends seven years of litigation by the Federal Trade Commission alleging fraud and deception in home lending. The case brought national attention to the targeting of poor, mostly minority homeowners for high-cost, high-penalty loans they couldn't afford or didn't understand.
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The agreement bans Capital City from future lending fraud and requires $750,000 for consumer redress. The firm, which makes only commercial loans now, according to its lawyers, must maintain a $350,000 fund in case of noncompliance.
The settlement was far less than the $11.6 million regulators had sought. "All settlements entail compromise, and this one is no exception," said Joel Winston, associate director of the FTC's division of financial practices. "But, in light of the unusual circumstances of this case, including the death of the primary defendant, we believe the result is a good one for consumers."
Capital City founder Thomas K. Nash died in 2002.
In the settlement, the defendants do not admit wrongdoing or liability. Philip M. Musolino, lead counsel for the defendants, said in an e-mail yesterday: "We are very pleased to have reached a settlement with the FTC on terms that do not disrupt Capital City's ongoing operations, that are readily manageable financially, and that, most importantly, reflect the FTC's acknowledgement that its 12 million dollar claim was simply ill-advised."
The FTC filed suit in 1998, following a series of Washington Post articles in 1995 about Capital City's lending practices. The agency alleged that the lender "deceptively induced consumers into taking loans secured by their homes, overcharged borrowers and, in some instances, caused consumers to lose their homes." The firm made about 1,400 residential loans from 1979 to 1998.
The FTC alleged that the firm added phony charges to loan balances, failed to give borrowers credit for some payments, foreclosed on some who had met loan terms and failed to release liens after loans were paid off.