JPMorgan Chase Sued for Canceling HELOC Accounts
A June 18, 2009 class action lawsuit filed against Washington Mutual Bank (“WAMU”) and its new parent, JPMorgan Chase (“Chase”), alleges that the banks violated the Truth-in-Lending Act by reducing or suspending millions of dollars of Home Equity Lines of Credit (HELOC) accounts by falsely claiming that customers' incomes had been reduced. A similar class action filed a week earlier in federal district court in Los Angeles asserted similar claims against the banks. An article posted on Seattle's King5.com reported that in the Los Angeles case, the banks are accused of relying on flawed automated valuation models to intentionally understate home values and create a pretext for freezing customers' HELOC accounts.
Creditors are allowed to freeze or reduce a HELOC account in certain situations. Regulation Z, which implements TILA, lists three primary bases for doing so: (1) if the value of the collateral declines significantly below the appraised value; (2) if the creditor reasonably believes that the consumer will be unable to make payments as agreed because of a material change in the consumer's financial circumstances; or (3) if the consumer is in default on a material term of the HELOC agreement. 12 C.F.R. 226.5(b)(f)(3)(vi). Whether Chase and WAMU met these standards will be the focus of the lawsuits. And it remains to be seen whether these cases signal the beginning of a wave of similar suits against other lenders that made similar decisions on HELOC accounts in the wake of the financial market crisis.
