SAN FRANCISCO — The publisher of Consumer Reports magazine filed suit Thursday in San Francisco, seeking to force ITT Financial Services to refund or forgo loan payments totaling $47.2 million because of alleged fee overcharges.
The suit, filed in Superior Court by the San Francisco office of Consumers Union, alleged that Aetna Finance Co., which operates in California as ITT Financial Services, added an illegal fee to more than 50,000 consumer loans of $1,000 or less in the last four years.
Aetna Finance is not affiliated with the Hartford, Conn.-based Aetna Life & Casualty Co. ITT Financial, with 99 offices in California, is part of New York-based ITT Corp.'s ITT Financial Corp. subsidiary and its units. ITT Corp. also owns the Sheraton hotel chain and Hartford Insurance.
Gail Hillebrand, a lawyer for the nonprofit Consumers Union, said in a statement that the loan companies "illegally and blatantly picked the pockets of thousands of small borrowers."
Hillebrand said an average overcharge of $2 per loan resulted from ITT's policy of charging a 5% administrative fee not only on the loan but also on the fee itself.
For example, when a customer requests a $600 loan, ITT considers the loan principal to be $600, on which it computes a 5% administrative fee. The firm then subtracts that 5%, or $30, and gives the customer a so-called cash advance of only $570. In that way, Consumers Union alleged, the customer is paying a fee on a fee.
Although the actual alleged overcharging was relatively small, Consumers Union maintains that, under state law, any overcharging on a loan nullifies the loan, and any "willful" overcharging makes the lender ineligible to collect future payments. "We believe it was willful," Hillebrand said in explaining why the group seeks refunds for the loans' total value.
A ruling favorable to Consumers Union, she added, would help ensure that other companies "won't step over the line."
Hillebrand said ITT Financial refused to voluntarily change its policy. Instead, Aetna Finance filed suit against Consumers Union on Dec. 7, seeking a ruling from the San Francisco court that its method of calculating fees was legal and therefore could not be challenged. Specifically at issue is how to define the loan's principal amount, according to Kristie L. Greve, a spokeswoman for ITT Consumer Financial.
In September, 1989, ITT Financial Services agreed to pay $19 million in civil penalties and make full refunds, plus interest, to 100,000 customers who the state attorney general said were bilked into buying unnecessary insurance and other loan extras. In agreeing to the settlement, ITT admitted no wrongdoing.