HSBC was mired in fresh controversy yesterday over its ownership of the US consumer finance giant Household International after agreeing to hand over millions of dollars to settle a lawsuit over predatory lending policies at the business.
The case, which is expected to be settled by next spring, marks the second time Household has been forced to make a hefty compensation payment to settle a dispute over its business methods. It paid $484m (£284m) to 50 states a year ago after it was charged with misleading borrowers about lending terms.
In the latest case, HSBC - which paid nearly £10bn for Household in March - has agreed to make a financial settlement and fund financial education for US consumers after being taken to court by the Association of Community Organizations for Reform Now, or Acorn.
The body, which fights for the rights of those on low and medium incomes, has targeted Household after receiving a flood of complaints from individuals who had borrowed money from the company only to find themselves swamped by the level of repayments. Some defaulted on their loans and had their homes taken away by Household.
"People have come to us having not understood what they are getting into. In some cases people have taken on multiple loans and have ended up owing more than their home is worth," a spokeswoman for Acorn said.
She added that customers of Household, which targets the less well off, might pay about 13 per cent interest on a first loan, already much higher than a conventional bank loan. The cost of borrowing from Household ratchets up even further on second loans.
HSBC, Britain's largest bank, which is famous for its conservative business culture, stunned the City when it revealed its intention to buy Household last November.
While the first court case with the 50 states was settled before HSBC took over, Household's chief executive, William Aldinger, dragged the bank into the headlines this year over the huge remuneration package he negotiated as part of the deal.
Mr Aldinger could receive $37m over three years. He also has a private jet and his contract with HSBC - normally one of the least generous employers even to its senior executives - includes a provision for the bank to pay for dental care for himself and his wife for life.
HSBC, which was aware of the dispute with Acorn when it bought Household, is thought to have agreed to pay $72m as part of the agreement.
The bank refused to say what the total sum would be, but denied there would be a "material financial impact" on the parent company. Household contributed $649m to HSBC's profits in the six months to 30 June - 9 per cent of the total - despite having come into the bank's stable only three months earlier.
Sir John Bond, the chairman of HSBC, has subsequently been praised by analysts for spotting the huge potential of Household, which has developed highly sophisticated methods for measuring the likelihood of people defaulting on loans.Reuse content