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Loan companies that saddled clients with big premiums for credit life insurance have paid settlements in two class action suits that yielded combined settlements valued at about $13.5 million. The suits, one of which settled earlier this month, involve single premium credit life insurance, a product offered with home mortgage loans. The insurance is sold to pay off a loan if the borrower dies, but it is extremely expensive, paid up-front and financed as part of the mortgage loan. “We argued that it was illegal. … Our clients are mostly elderly, lower-income, minority people who are typically unsophisticated in financial matters,” says Howard D. Rothbloom, a Marietta, Ga., sole practitioner representing the plaintiff classes. “Credit life insurance is a colossal rip-off.” Lawyers in the cases won $3.1 million in fees. Rothbloom cites one of the named plaintiffs, Winfred Wood, as an example. Wood is a former restaurant worker in his 60s whose house was paid off. He had to borrow money after he contracted diabetes and couldn’t pay his medical bills. In 1991, he borrowed just $567 at 32 percent interest from a small loan company. That initial loan was secured by his home, and when he was unable to pay it off, it got rolled into larger and larger loans. Eventually, he took out a home equity loan with Associates Financial Life Insurance Co., one of the defendants in these suits. He borrowed $36,400 at an annual percentage rate of 16.5 percent for 15 years. About six months later, he entered into a second loan agreement, financing $46,600 at 14 percent APR for 15 years. Each loan included a $5,062 charge for credit life insurance. The insurance provided $75,000 in coverage, but the coverage amount declined the longer Wood held the policy. “The bottom line is that he was paying for twice as much expensive insurance as he needed, but that was not the legal issue in this case,” Rothbloom says. “The interesting thing is Mr. Wood didn’t even have a wife or children to protect.” The settlement, says Rothbloom, paid off Woods’ loan balance — which was $75,000 by the time the case settled — and gave him an insurance refund and cash of about $81,000. Wood v. Associates Financial Life Insurance Co., No. 97-1-3977-35 (Cobb Super. settledMay 15, 2001). Troutman Sanders partner A. William Loeffler, who represented Associates and other finance companies, says only, “We’re happy to get it resolved and we think the administration of the settlement should be completed soon.” He said he was not authorized by his client to comment further. His co-counsel was Herbert D. Shellhouse, a partner of Troutman Sanders in Atlanta. Rothbloom argued that credit life insurance is illegal in Georgia if sold after July 1, 1991, on loans with terms of more than 10 years, citing O.C.G.A. � 33-31-2 (c). He also argued that the lenders sold this insurance on long-term loans even after the insurance commissioner had denied them permission to do so. The Troutman Sanders defense attorneys argued in their answer, among other things, that there was no private right of action for violating the Georgia Insurance Code and that some of the claims might be barred by estoppel, release or waiver. Rothbloom filed the suits about four-and-a-half years ago, when he was working with then-practicing attorney, now governor, Roy E. Barnes, whose name appears on early pleadings. Rothbloom’s co-counsel now is Craig G. Harley of Chitwood & Harley in Atlanta. Both suits were against the same lender, which has been sold and has changed names several times during the course of the litigation. Defendants involved, and their present and former parent companies and affiliates, include Citigroup Inc., CitiFinancial Credit Co., Ford Consumer Finance Co. and various companies from the Associates group. ‘SIGNIFICANT IMPACT’ Rothbloom says the cases have received so much attention in the lending and credit industry that one of the defendants, CitiFinancial, as well as unrelated companies American General and Household Finance, have said they will not sell this type of insurance anywhere in the country. “It had an extremely significant impact on the credit insurance industry nationwide,” he says. The suits have had significant impact in Georgia, as well. According to Rothbloom, Insurance Commissioner John W. Oxendine, as a result of the suits and some open records tussles with Rothbloom, eventually issued a cease and desist order against Associates for selling long-term credit life insurance, and fined the company $143,500 for violating state law. In the Matter of Associates Financial Life Insurance Co., No. 99C-014A and B (Jan. 31, 2000). 11TH CIRCUIT PRECEDENT The cases, says Rothbloom, also resulted in a precedent-setting 11th Circuit ruling. The finance company defendants had removed one of the cases to federal court, seeking diversity jurisdiction, which requires the parties to be from different states and an amount in controversy of more than $75,000. The plaintiffs had stipulated that their damages would not exceed $75,000, so the defendants contended that attorney fees could be aggregated to satisfy the federal amount in controversy. Ultimately, 11th U.S. Circuit Court of Appeals Judge Frank M. Hull ruled that a statutory award of attorney fees gives to each individual plaintiff a separate and distinct right to those fees as compensation — not punitive damages — and such separate, compensatory claims may not be aggregated. Darden v. Ford Consumer Finance Co., No. 98-9412 (11th Cir. Jan. 12, 2000). She remanded the case to Fulton Superior. It settled earlier this month for $3.9 million. Darden v. Ford Consumer Finance Co., No. E-62360 (Fult. Super. settled Dec. 4, 2001). One named plaintiff in that suit, Ralph C. Darden, had taken out a home equity loan of about $62,800 at 13.54 APR for 15 years, with $3,584 in credit life insurance as part of the loan. The other named plaintiffs, senior citizens Otis Lee Ivory and Cora J. Ivory,borrowed $56,000 at 15.1 percent APR, including $4,692 for credit life insurance. In both instances, the insurance premiums were paid in full and added to the principal amount borrowed. The insurance coverage amount of $75,000 exceeded their mortgage liability, and the insurance was slated to expire five years before the scheduled payoff on their loans. The Wood suit, which is related, settled this spring for $9.5 million. Total attorney fees and expenses from the two cases are about $3.15 million, according to Rothbloom. HIGH CLAIMS PERCENTAGE “Many years ago, a good friend of mine once told me that you can’t make any money representing consumers, especially poor consumers,” he says. “So I hope that I can inspire others to represent poor consumers.” The combined classes from both suits total about 3,500 people. About half of those had insurance coverage still in force. They got a full refund of their premiums, plus a half-point interest rate reduction and $300, says Rothbloom. On average, then, those with coverage in force in the Darden case got about $4,200 each; those in the Wood case got about $6,500. Those without coverage — usually because they’d paid off or refinanced their loans — got a refund of 30 percent of the money the lender/insurer didn’t return to them when they canceled their coverage, he says. That means those in the Darden case got about $220 and those in the Wood case got about $350. “The percentage of claims is very high. It’s something like 83 percent,” says Rothbloom. “Part of the reason is I took pains to make the claims process extremely simple and clear. … Most of my clients are low-income people and they would be confused and wouldn’t claim their money otherwise.”

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