First Alliance Faces New Legal Attacks on Loan Fees, Tactics

Controversial Irvine lender First Alliance Mortgage Co. is facing more legal challenges in several states this week over fees charged for loans.

Illinois authorities filed a lawsuit Tuesday that accused First Alliance of charging excessive fees to refinance loans.

The suit alleged that First Alliance charged borrowers $12,000 to nearly $20,000 in fees, which in some cases amounted to more than 20% of the loan. About 50 victims in Illinois had been identified.

In Minnesota, authorities sought an injunction to stop the company from using what were described as confusing sales pitches to conceal the true costs of loans.

On Tuesday, Massachusetts won an injunction limiting loan charges to 5% of the loan amount. The state had sued on Oct. 30. State officials estimated that the company closed 300 loans since opening there in March 1997.

First Alliance spokeswoman Lynn Brainard said the company declined to comment on the lawsuits.

In Minnesota, the state attorney general’s office is seeking an injunction that would require First Alliance to provide repeated notices of the fees being charged for loans before making its sales presentation.

The company, which has closed an estimated 100 to 200 loans in the state, is using a confusing sales pitch to conceal high interest rates and loan costs that run 15% to 25% of the amount being financed, the attorney general’s office contended.

“The focus at this point is on getting them to cease their deceptive conduct,” said Prentiss Cox, a Minnesota assistant attorney general.

Ernest Peake, attorney for First Alliance, said the company is preparing a response to the injunction.

Minnesota had filed a lawsuit last month seeking restitution for customers and unspecified civil penalties.

First Alliance has been the target of several other lawsuits alleging that the firm engaged in questionable lending practices.

In Northern California, the American Assn. of Retired Persons has joined lawsuits accusing the company of aggressive sales campaigns pitching low-interest loans to elderly homeowners, then imposing fees of as much as 15% of the loan amount.

First Alliance stock closed Wednesday at $4.50, up 14 cents a share. The shares which traded as high as $21.25 a year ago, hit a low of $2.38 early in October.