JPMorgan Chase Sued for Canceling HELOC Accounts

Posted on June 24, 2009 by Fred Rivera

 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.

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More TILA Litigation on the Horizon? Deadline to Comply with New Reg Z Early Disclosure Rules Now July 30

Posted on June 17, 2009 by Fred Rivera

The Federal Reserve's December 2008 revisions to Regulation Z (Truth in Lending Act) closed-end mortgage early disclosure requirements were to take effect October 1, 2009.  However, these changes were superseded by the enactment of the Mortgage Disclosure Improvement Act of 2008 (MDIA). As a result, the Federal Reserve has revised Regulation Z to incorporate the MDIA amendments.  Compliance with the revised early disclosure requirements is mandatory on July 30, 2009. 

According to the FDIC's release, the revisions will include provisions that:

  • Expand Reg Z's disclosure requirements to all mortgage loans secured by any dwelling of a consumer, not only a consumer's "principal" dwelling, as wells as refinancings and home equity loans.
  • Require lenders to deliver corrected disclosures at least three business days before loan consummation if the APR provided in the early disclosures changes beyond the tolerances provided in Section 226.22.
  • Prohibit lenders from charging a consumer any fee, except to obtain a credit report, until after the early disclosures have been provided.
  • Permit consumers to expedite the closing of a mortgage loan subject to the early disclosure provisions to address a personal financial emergency, such as foreclosure.
  • Require lender to inform a consumer that he or she is not required to complete the transaction because the consumer has received the early disclosures or applied for a loan.

In the wake of the financial crisis, lawsuits alleging violations of consumer protection laws (such as TILA) and other subprime-related litigation, are at all time highs.  According to a report by Navigant Consulting, the number of subprime-related court filings reached an unprecedented level in 2008--totaling 576.  Many of these cases alleged improper disclosures and charges under TILA and RESPA.  Revised Reg Z provisions, including additional disclosures for more loan types, will present additional opportunities for single-plaintiff and class-action litigation.

 (Special thanks to Perkins Coie attorney Veronica McGregor for assisting with this posting)

 

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