The company said it will pay just under $1.6bn (£1.1bn) to shareholders after a class action lawsuit filed in 2002.
HSBC bought the company for $14.2bn back in 2003, in an effort to increase its share of the US mortgage market.
But in 2009, as aftershocks from the sub-prime mortgage crisis continued to shake the US property market, HSBC Finance (Household's new name after it was bought) was wound-up, with some reports suggesting HSBC wrote off billions of pounds.
The lawsuit stemmed from before the acquisition as shareholders had alleged that the company had inflated its share price by hiding its bad lending practices. Shares lost more than half their value between 2001 and 2002.
In 2009, shareholders won - but in May last year, a court in Chicago overruled that, ordering a new trial.
In a statement today, HSBC said the settlement is likely to show up as a $585m pre-tax charge in its second quarter results.
The settlement comes as HSBC attempts to restructure, shrinking some of its international operations. Earlier this month it was given the thumbs-up by the Brazilian competition watchdog to sell its business in the country - shortly after it had announced plans to restructure its global banking division in an effort to slash costs.
This morning shares rose more than one per cent to 430.9p in early trading.