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THE American bank that HSBC plans to buy for £9.7 billion is at the centre of a row over a new loans scheme. It is offering cash bonuses to staff who renegotiate loans for borrowers having difficulty with repayments.
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Staff at Household International, which specialises in lending to people with poor credit records, collect £250 each time they help to rearrange 'delinquent' loans where borrowers are at least three months in arrears.
Household introduced the bonus scheme a few weeks ago as a 'financial service' to customers. But critics claim the bank is preying on financially vulnerable clients and artificially trying to inflate the size and quality of its loans business ahead of the HSBC purchase. HSBC hopes to complete the Household acquisition within a year.
Prominent among Household's critics is community action group Inner City Press, run by Mathew Lee in the deprived Bronx suburb of New York. Lee, who makes no secret of his opposition to the Household deal, told Financial Mail: 'Its purpose in refinancing delinquent loans is mostly not to help customers. They offer many loans that they know the borrowers can't pay - where, for example, the borrower will owe more than half their income to Household.
'Then, because having so many delinquent loans on their books would hurt them in the eyes of analysts, they pay their staff to refinance the loans as 'new' loans, so they no longer appear to be delinquent.'
Household had £67.2 billion of loans outstanding at the end of September - £5 billion more than HSBC has lent to personal and business customers in Britain. But arrears on Household's book run at 5% - more than double the rate at HSBC.
Household admitted that delinquent loans were being rearranged, but denied that the aim was to make its loan 'book' look better. 'We do have a programme in place,' said a spokesman, 'but I would take exception to Mr Lee's interpretation. If borrowers are facing difficulties, we will take the loan and re-underwrite it.'
Household said that it would either negotiate a new, lower rate for the borrower, or move the due payments to the end of the life of the loan.
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