A lot of financial institutions are facing heat from American states for supposedly misleading customers. After the recent brouhaha over auction-rate securities which saw several major banks agreeing to settle with the suing states, now it's the turn of the country's biggest mortgage lender Countrywide. (See: Citigroup to settle with authorities on securities fraud and Morgan Stanley joins Citigroup, UBS and Merrill in buying back auction-rate securities)

The Indiana attorney general's office has filed a law suit against the mortgage lender, Countrywide. State Attorney General Steve Carter said the company mislead homeowners and at times even flat out lied to them.

The said suit was filed yesterday in Steuben County Court and seeks civil penalties of as much as $15,500 per violation, investigative costs and restitution for consumers. The plaintiff is also asking that the court order Countrywide, recently acquired by Bank of America, to end certain contentious practices and void prepayment penalties and loans that originated from them. (See: Bank of America's $4-billion acquisition of mortgage lender Countrywide cleared)

"The specific suit we're bringing now, we brought in Steuben County because we do have a number of people that live in that area that we think will be affected by the outcome of this litigation but the complaint names consumers in Hamilton and Marion counties," Carter said.

In the lawsuit, Carter says Countrywide engaged in "deceiving and misleading practices."

"These unfair lending practices may have harmed thousands of people and, in turn, negatively affected our communities and neighborhoods throughout the state," Carter said in a news release. ''Before more people face the prospect of foreclosure or actually lose their homes, we need to determine whether individual loans may have been originated through methods that violated Indiana law.''

Carter alleges that Countrywide provided financial incentives for brokers to sell potentially risky loans, omitted or misleadingly presented loan terms, and misled borrowers about prepayment penalties or the time in which they would apply.

"We've also had misrepresentation on loan documents where people have had their income inflated consumers have actually shown where their income is about $3,500 per month but the documents show $14,000 per month in income," he added.

Of course, the lender is not exactly a stranger to allegations of financial irregularities, considering what Carter said - ''There are several states that have brought litigation against Countrywide and I think we're about the sixth Attorney General office to do that''. In fact, Countrywide has been subjected to punitive action by six American states this year – California, Connecticut, Florida, Illinois, Washington and New Mexico.