HSBC Finance

HSBC Finance Corporation is a United States-based consumer-finance company within HSBC Holdings plc. Its corporate identity was created from the business formerly known as Household International, a long-established lender that operated under names including Household Finance, HFC and Beneficial. The business historically focused on consumers outside the prime banking segment, offering secured and unsecured personal loans, home-equity and other real-estate-secured lending, automobile finance, general-purpose MasterCard and Visa accounts, private-label retail cards and selected insurance and service-plan products. The business traces its origins to Household Finance Corporation, founded in Minneapolis in 1878. Household promoted the installment-loan model, under which customers repaid a loan through regular periodic payments rather than a single lump-sum payment. It expanded over the following decades and was reorganized under Household International in 1981. In 1998, Household International acquired Beneficial Corporation, strengthening its branch-based consumer-lending presence in the United States and extending its operations in Canada and the United Kingdom. Household's lending practices later became a major liability. In 2002, the company agreed to a multistate settlement concerning allegations of predatory lending, including expensive loan terms and inadequate disclosure of certain charges and penalties. The settlement followed substantial legal costs and required restitution and changes to lending practices. HSBC announced its acquisition of Household International in November 2002, and the transaction closed in March 2003 for an announced value of approximately $15.3 billion. Household's business was subsequently integrated into HSBC's North American operations, with the HSBC Finance name becoming the principal corporate identity for much of the consumer-finance platform. During the middle of the 2000s, HSBC Finance maintained a broad North American and British consumer-credit platform. In the United States, HFC and Beneficial branches supplied secured and unsecured loans, while HSBC-branded and private-label card operations served consumers and retail partners. HSBC also acquired Metris Companies' credit-card activities in 2005, adding middle-market card accounts and the American DreamCard product line. Mortgage origination was conducted through businesses such as Decision One, while HSBC Bank Nevada issued HSBC-branded cards. The global financial crisis and the deterioration of subprime and mortgage markets led to a strategic retreat. Decision One was closed in 2007, and in 2009 HSBC Finance stopped originating new consumer loans in the United States through its HFC and Beneficial branches. The company shifted toward servicing, collecting and running off existing receivables while assisting mortgage customers with repayment and home-preservation efforts. Branch closures and workforce reductions followed. HSBC also disposed of major portions of the platform: its automobile-loan units were sold to Santander Consumer USA in 2010, and its United States credit-card business was sold to Capital One in 2011. In 2013, US consumer-loan portfolios were sold to Springleaf Financial and Newcastle Investment Corp. The Canadian operation ceased activity in March 2012, with its branches closed and approximately 500 employees affected. The United Kingdom branch network was also progressively closed after HSBC stopped accepting new business there. HSBC Finance therefore no longer functions as the expansive, branch-based consumer lender described in its earlier history. Its later role has centered on legacy portfolios, servicing, legal matters and the disposition or transfer of remaining assets and obligations. The company remains an HSBC subsidiary, but its consumer-finance operations have been substantially reduced from their pre-crisis scale.

HSBC Finance developed from Household Finance Corporation, founded in Minneapolis in 1878 by Frank MacKey. Household claimed an early role in popularizing installment credit, allowing borrowers to repay through regular payments. The enterprise was reorganized in 1981 beneath Household International Inc. and expanded through acquisitions, including the 1998 purchase of Beneficial Corporation. By the late twentieth century, Household International operated consumer-lending businesses in the United States, Canada and the United Kingdom. The company became associated with controversy over its treatment of borrowers. In 2002, attorneys general from 46 US states pursued allegations involving predatory lending, high-cost loans, prepayment penalties and insufficient disclosure. Household agreed to a settlement involving approximately $486 million in charges, restitution and changes to its lending practices. The legal matter imposed substantial costs and became a significant part of the company's history. HSBC announced the acquisition of Household International in November 2002, and completed it in March 2003. Household was integrated into HSBC's North American structure, and a successor entity became HSBC Finance Corporation in 2005. The resulting subsidiary combined HFC and Beneficial branch lending with credit cards, automobile finance, mortgage-related lending, private-label cards and specialty insurance. HSBC attempted to use the consumer-finance model in other markets, while also expanding its US card platform through the acquisition of Metris Companies' card business in 2005. The strategy was undermined by the US housing downturn and the global financial crisis. Decision One, a mortgage-origination subsidiary that sourced loans through brokers, was closed in September 2007. In 2009, HSBC Finance ended new US consumer-loan originations through its HFC and Beneficial operations, closed branches and reduced staffing. The company continued to service and collect existing loans and stated that it would work with mortgage borrowers on repayment and home preservation. The subsequent strategy was one of asset sales and managed contraction. HSBC sold its automobile-loan units to Santander Consumer USA in 2010 and sold its US credit-card operation to Capital One in 2011. The Canadian business ceased operations in 2012, while the United Kingdom branch network was progressively closed after new business was withdrawn. In 2013, HSBC Finance sold US consumer-loan portfolios to Springleaf Financial and Newcastle Investment Corp. Later events focused on legacy liabilities and information controls. In 2015, customer mortgage information was accidentally exposed through a publicly accessible server. In 2016, HSBC Finance proposed a settlement of the Jaffe shareholder class action concerning pre-acquisition Household events. HSBC Finance consequently became a substantially smaller and more runoff-oriented business than the consumer lender acquired by HSBC in 2003. Its historical significance lies in the scale of its US consumer-credit network, the risks associated with subprime lending and the subsequent retreat from that model.

1. 2016Jaffe litigation settlement announced

   HSBC Finance announced a proposed settlement of a shareholder class action concerning legacy Household matters.

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2. 2015Mortgage-information exposure reported

   Customer mortgage information was reportedly exposed through a publicly accessible webserver.

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3. 2013US consumer-loan portfolios sold

   HSBC Finance sold US consumer loans to Springleaf Financial and Newcastle Investment Corp.

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4. 2012Canadian operations cease

   HSBC Finance Canada closed its branches and ceased operations.

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5. 2011US card business sold to Capital One

   Capital One agreed to acquire HSBC's US credit-card arm.

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6. 2010Automobile-loan units sold

   HSBC Finance sold its automobile-loan units to Santander Consumer USA.

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7. 2009New US consumer lending discontinued

   HSBC Finance stopped accepting new consumer-loan applications through its US HFC and Beneficial operations.

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8. 2007Decision One mortgage business closed

   Decision One was shut down amid the subprime mortgage-market crisis.

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9. 2005HSBC Finance identity established

   Household was merged with an HSBC subsidiary that became HSBC Finance Corporation.

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10. 2005Metris card business acquired

    HSBC acquired Metris Companies' US middle-market credit-card business and integrated its product line.

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11. 2003HSBC completes Household acquisition

    HSBC completed its acquisition of Household International.

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12. 2002Predatory-lending settlement

    Household International agreed to a large multistate settlement concerning alleged predatory lending.

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13. 1998Beneficial Corporation acquired

    Household International acquired Beneficial Corporation, expanding its consumer-finance operations.

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14. 1981Household International restructuring

    The business was reorganized beneath a holding company named Household International Inc.

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15. 1895Installment lending model promoted

    Household stated that it was the first financial company to offer a consumer installment plan based on regular repayments.

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16. 1878Household Finance Corporation is founded

    Frank MacKey founded Household Finance Corporation in Minneapolis, establishing the business that ultimately developed into HSBC Finance.

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Historically positioned as a large, branch-based consumer lender serving middle-market and subprime customers, with distribution through proprietary branches, credit-card channels, mortgage brokers and retail merchant relationships. After 2009, the business shifted from new-loan origination toward legacy-portfolio servicing and runoff.

• HFC consumer loansSecured and unsecured consumer lending

  Loans offered through the HFC branch network, including real-estate-secured loans and unsecured personal credit. The business primarily served middle-market and subprime borrowers and stopped taking new US applications in 2009.

• Beneficial consumer loansConsumer lending1998

  Consumer-loan products distributed under the Beneficial name after Household International acquired Beneficial Corporation. The US branch operation was closed as HSBC Finance withdrew from new consumer lending.

• HSBC credit cardsGeneral-purpose credit cards

  MasterCard and Visa accounts issued through HSBC's US consumer-credit platform. The US credit-card business, including a large receivables portfolio, was sold to Capital One in 2011.

• Private-label retail cardsRetail credit

  Store-branded credit programs issued for merchant partners in sectors including consumer electronics, automotive, sporting goods and department stores. Examples included Best Buy, GM, Yamaha, Kawasaki, Neiman Marcus, Polaris and Saks Fifth Avenue.

• Decision OneMortgage origination

  A mortgage company that originated real-estate-secured loans sourced through mortgage brokers. It was closed in September 2007 during the subprime mortgage-market downturn.

• Automobile financeAuto lending

  Automobile-loan operations serving US consumers. HSBC Finance sold these units to Santander Consumer USA in 2010.

• 2013Sell US consumer-loan portfoliosM&A

  HSBC Finance continued to reduce its legacy US consumer-credit exposure.

  What changed. US consumer loans were sold to Springleaf Financial and Newcastle Investment Corp.

  Aftermath. The transaction further reduced HSBC Finance's directly held US consumer-loan portfolio.

  Source
• 2012Exit Canadian consumer-finance operationsStrategy

  HSBC was narrowing the geographic footprint of its consumer-finance business.

  What changed. HSBC Finance Canada ceased operations and closed its branches.

  Aftermath. The Canadian consumer-finance network was withdrawn, affecting approximately 500 employees.

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• 2011Sell US credit-card arm to Capital OneM&A

  HSBC was pursuing a more internationally focused strategy and exiting substantial portions of US retail finance.

  What changed. HSBC agreed to sell its US credit-card business to Capital One.

  Aftermath. Capital One acquired a card portfolio of approximately $30 billion, while HSBC said customers would initially experience no immediate program changes.

  Announced transaction value. Approximately US$2.6 billion (2011)

  • Capital One — Capital One announced the acquisition to expand its domestic credit-card business.
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• 2010Sell automobile-loan unitsM&A

  HSBC was reducing the scope of its US consumer-finance operations.

  What changed. HSBC Finance sold its automobile-loan units to Santander Consumer USA.

  Aftermath. Auto lending was removed from HSBC Finance's direct US operating platform.

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• 2009End new US HFC and Beneficial lendingStrategy

  The financial crisis and deterioration of consumer-credit and housing markets made the branch-based lending model less attractive.

  What changed. HSBC Finance stopped originating new consumer loans through its US Consumer Lending business, closed branches and reduced staffing while continuing to service existing receivables.

  Aftermath. The US operation became a legacy-portfolio and runoff business rather than a major new-loan originator.

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• 2007Close Decision OneStrategy

  The subprime mortgage-market downturn weakened the viability of broker-sourced mortgage origination.

  What changed. HSBC Finance shut down Decision One, affecting approximately 1,500 employees.

  Aftermath. HSBC reduced its exposure to mortgage origination before later withdrawing from new US consumer-loan origination more broadly.

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• 2005Acquire Metris Companies' credit-card operationsM&A

  HSBC sought to expand its US middle-market credit-card presence.

  What changed. HSBC acquired Metris Companies in an all-cash transaction and added the Metris product line to its card portfolio.

  Aftermath. The acquired accounts included the American DreamCard, which was associated with the Direct Merchants Bank brand.

  Transaction value. Approximately US$2 billion (2005)

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• 2016Jaffe v. Household International shareholder litigationControversy

  HSBC Finance proposed a settlement of a shareholder class action involving events that occurred before HSBC acquired Household International. The settlement remained subject to court approval at the time described in the source.

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• 2015Exposure of US mortgage-customer informationControversy

  Information associated with US mortgage customers, reportedly including Social Security numbers and telephone numbers, was accidentally uploaded to a publicly accessible server and indexed by Google.

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• 2008Payment Protection Insurance enforcement involving HFC BankControversy

  The United Kingdom Financial Services Authority fined HFC Bank £1.085 million for failing to take reasonable care in the sale of Payment Protection Insurance.

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• 2002Household predatory-lending settlementControversy

  Household International settled allegations brought by attorneys general in 46 US states concerning predatory lending, costly loan terms and disclosure practices. The settlement required restitution and changes to lending procedures.

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• 2012HSBC Finance closes Canadian operations

  HSBC Finance Canada ceased operations, closing its branch network and affecting approximately 500 employees.

  Leadership change
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• 2011HSBC sells US credit-card business to Capital One

  Capital One agreed to acquire HSBC's US credit-card business, including a portfolio of approximately $30 billion in card receivables.

  M&A
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• 2009HSBC Finance stops new US consumer-loan originations

  The company announced that its US Consumer Lending business would stop originating new products and concentrate on servicing and collecting existing receivables.

  Bankruptcy
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• 2002HSBC announces acquisition of Household International

  HSBC announced an agreement to acquire Household International in a transaction valued at approximately $15.3 billion.

  M&A
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1. HSBC Finance
2. HSBC global website