Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, December 10, 1994 TAG: 9412120001
SECTION: VIRGINIA PAGE: A7 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
DATELINE: LENGTH: Long
But building cars, trucks and vans isn't what put Ford in the No. 2 spot on the nation's Fortune 500 list last year.
The business press has called Ford's financial services empire the engine that makes the company go - even its savior during rocky times in the auto business.
A large chunk of Ford's profits come from one little-known financial subsidiary, Associates Corp. of North America. The Texas-based company made nearly $14 billion in consumer loans last year and earned more than a half-billion in profits - contributing well over one-fifth of Ford's earnings.
Associates has stood out in other ways: One of its consumer-lending arms, Associates Financial Services, has become the target of lawsuits charging it with cheating disadvantaged borrowers. The allegations have included fraud, forgery and deception. In Arizona, the company paid almost $3.4 million to settle charges that it manipulated customers into buying credit insurance.
The lawsuits are spread across the United States - from Florida to Minnesota to Washington state - and involve thousands of customers. But so far the charges against the company have not received national attention.
Closer to home, Associates reached a confidential settlement in a Roanoke case this year involving a loan that was arranged through a home-repair contractor that later lost its license. It also settled a 1991 Roanoke lawsuit that accused it of trying to "intimidate, harass and badger" a couple who had defaulted on a personal loan and filed for bankruptcy.
Associates also reached a settlement this summer in a U.S. District Court case in Richmond that charged the company with violating the federal "truth-in-lending" law.
The company admitted no wrongdoing in these cases or in others it has settled around the country.
"In the big picture, we serve millions of customers and serve them well," spokesman Dale Knight said from Dallas, where Associates is headquartered. "We live in a litigious society and there are going to be lawsuits, no matter what your business."
Associates Corp. Chairman Reece Overcash Jr. says the one message he conveys to all employees is "to tell the truth. ... I think integrity is the heart of our success."
\ Associates Corp., founded in 1918, now controls more than 1,600 finance offices in the United States, Japan and the United Kingdom through Associates Financial Services and other consumer-lending units.
Ford bought Associates from Gulf & Western (now Paramount Communications) in 1989 for $3.35 billion. Associates is involved in truck leasing and many other ventures, but specializes in businesses that banks usually overlook - such as small loans and second mortgages to less-affluent borrowers.
"There are 25 to 30 million households in the U.S. that do not have banking relationships - that's where Associates does its work," banking analyst Jim Hanbury told Automotive News last year. "Associates offers good service to the blue-collar, urban and small-town customer base ... the banks refuse to work with."
Many of the customers are people like Ruth Williams, who earned about $6,000 a year as a cafeteria worker in Jupiter, Fla. She lived in the house that her husband built before he died. She owned it free and clear but had little else to her name.
She got into debt with Associates after buying a washing machine on credit. The company financed the purchase, then mailed her a solicitation: "Combine your debts, get extra cash at no extra cost!"
She refinanced. The company gave her $9,085 in cash, paid off $9,909 in other debts and charged her $3,123 for credit insurance and $1,849 as an up-front loan fee. Then the company persuaded her to refinance twice more at interest rates approaching 18 percent - each time assessing a pre-payment penalty on the previous loan and then adding thousands more in insurance and fees.
In the end, she owed more than $37,000 and, with interest, was obligated to pay back more than $107,000. She couldn't make the monthly payments and Associates moved to foreclose on her home.
She countersued, charging the company with fraud. Her attorney says in the lawsuit that the promise of "no extra cost" for more money proved to be false and that Associates knew Williams was an unsophisticated consumer who didn't understand the papers she signed. The case is pending.
\ Williams' lawsuit is one of many the company has faced in recent years:
In March, an Alabama jury hit Associates with a $34.5 million verdict for trying to foreclose on a customer who claimed her name had been forged on loan papers. Two other customers testified they believed their loan papers also had been forged, and a former branch manager said he had heard of other forgeries in the office.
Associates says no papers were forged, and this fall the trial judge reversed the jury verdict and ordered a retrial. The judge said he had made a mistake by letting the borrowers' attorneys get away with describing Associates as a company without a conscience. The new trial is set for February.
Two years ago in Washington state, the company settled a lawsuit charging it with forging loan documents and other violations. It also settled a 1988 lawsuit charging that it had fooled a Seattle couple into refinancing a lower-interest loan with another lender for an 18.25-percent mortgage with Associates.
Last year in Arizona, Associates agreed to pay $3 million to about 8,000 low- and moderate-income borrowers to settle a lawsuit accusing it of forcing them to buy insurance with their loans. It paid another $375,000 to Arizona's attorney general.
In 1990, the company agreed to pay $230,000 to settle a class-action lawsuit in South Carolina. The suit claimed the company had used complex loan provisions to overcharge borrowers on interest.
The company faces more class actions in Alabama and Minnesota. An Associates Corp. subsidiary, Ford Consumer Finance Co., faces a national class action involving up to 50,000 customers. The suit claims Ford paid kickbacks to brokers who steered borrowers into high-cost loans.
In 1991, Associates Credit Card Services agreed to pay $48,000 to settle a Texas attorney general's investigation of allegations that its collectors had harassed 56 debtors by calling them repeatedly, cursing at them and calling their co-workers and bosses.
The company admitted no guilt, but a spokesman said, "We felt that there were some instances that could have been handled in a different manner."
\ Associates spokesman Knight says the allegations against the company are isolated cases. He says critics don't focus on cases like one recently in Arizona, where the company helped out a customer who was about to lose her home: "She was in financial difficulties because of extenuating circumstances. It was obvious she would not be able to repay the loan. So we just wrote it off and gave her the home."
The company's legal problems have done little to affect the bottom line. Last year Associates Corp.'s profits grew 19 percent as the company posted record earnings for the 17th year in a row.
To keep growing, the company says it "intends to remain on the cutting edge and continue reaching out to new markets." It now serves many U.S. communities where Chinese, Thai, Laotian, Spanish and Portuguese are the primary languages, and tries to have employees who can speak those languages fluently.
Last year a competitor, ITT Financial Services, closed hundreds of its offices - amid heavy financial losses and a slew of loan-fraud cases the company eventually settled for at least $80 million.
Associates moved to fill the void. It announced it was hiring 670 ex-ITT employees and opening 170 new offices, many of them in places now abandoned by ITT.
Tom Sloan, president of Associates' U.S. operations, said the new locations would give the company a chance to build its business "from the ground up" in smaller towns and communities not yet served by Associates.
by CNB