Household International

Link Executive Pay to Predatory Lending Performance

WHEREAS,
Household International’s controversial lending practices have cost shareholders dearly.

Historically, Household’s management has denied that the company had problems associated with predatory lending.

Last year, the Board encouraged shareholders to vote against this proposal, saying the company already considered compliance with ethical business practices in the setting of executive pay. At last year’s annual shareholder meeting, Household’s CEO, William Aldinger, responded to the introduction of this shareholder resolution, with a firmly delivered, “We are not predatory lenders.” Hundreds of employee shareholders in the audience responded to Mr. Aldinger with a standing ovation. Yet, only months later, with the company’s stock price badly battered, Household settled the largest predatory lending complaint in the nation’s history, agreeing to pay $484 million of shareholders’ money. Several large class action lawsuits alledging damages from predatory lending practices remain as potential liabilities of Household.

One of the most significant predatory practices yet to be addressed by the sub-prime industry is giving customers with strong credit histories higher priced subprime loans. This practice alone costs sub-prime borrowers nearly $3 billion a year according to The Coalition for Responsible Lending (www.ResponsibleLending.org). According to Freddie Mac and Fannie Mae, between 30% and 50% of all subprime customers either currently qualify for lower-cost prime rate loans or would qualify within two years. Household International has yet to find a means of ensuring that all credit-worthy customers who qualify for a lower-rate prime loan get one.

Looking at Household’s executive pay figures for 2001, it is difficult to understand how predatory lending problems are factored in. In 2001, a year when the number of predatory lending lawsuits against the company rose, the company’s highest paid officers (excluding one who retired during the year) all saw their cash bonuses increase by 25% over the previous year and their stock option grants increase by a third.

Household’s management has repeatedly stated their desire to end predatory lending practices, yet at the same time has lobbied against adoption of strict predatory lending legislation at the state and local levels.

RESOLVED,
The Board shall conduct a special executive compensation review to study ways of linking a portion of executive compensation to successfully addressing predatory lending practices. Among the factors to be considered in this review are: implementation of policies to prevent predatory lending; evaluation of subprime loans by outside auditors for compliance with laws and Household’s internal policies; constructive meetings with concerned community groups; and reductions in predatory lending complaints filed with government bodies. A summary of this review, prepared at reasonable cost and omitting proprietary information, shall be made available to shareholders, upon request, no later than four months following the annual meeting.

Supporting Statement

Thirty percent of shareholders voting supported this proposal at last year’s annual meeting. Shareholder returns have suffered as a result of Household’s sub-prime lending practices. It is time that the financial fortunes of executives be linked to eradicating predatory lending practices.
Please vote FOR this resolution.

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