Consumer Financial Services Alert - February 9, 2010

The Fourth Circuit recently held that consumers do not have a right to rescind a loan under the Truth in Lending Act unless the loan transaction is actually completed. Plaintiffs applied for a mortgage refinance, but did not complete the transaction after a lower-than expected appraisal resulted in the lender imposing a discount point to close the loan. Plaintiffs then demanded a refund of their non-refundable $500 deposit, and sued seeking statutory rescission under TILA when the lender would not refund its out-of-pocket costs for an appraisal and credit report. The Fourth Circuit affirmed the district court’s grant of summary judgment on the grounds that the right to rescind under TILA only applies to a consummated transaction. Here, plaintiffs never completed the transaction, so they had no right to rescind. Click here for Weintraub v. Quicken Loans, Inc., No. 08-2373 (4th Cir. February 5, 2010).

A federal judge in California recently granted summary judgment in favor of First Tennessee Bank, National Association in a class action lawsuit based on two alleged discriminatory lending practices: the alleged “steering” of African American borrowers into subprime loans and the qualification of African American borrowers for adjustable rate mortgages only by reference to below-market initial, discounted interest rates. The National Association for the Advancement of Colored People sued First Tennessee and numerous other lenders for injunctive relief as to the alleged practices. First Tennessee moved for summary judgment, arguing that the undisputed evidence demonstrated it had not engaged in the challenged lending conduct. The court agreed, and granted First Tennessee’s motion. Goodwin Procter partners Tom Hefferon and Brooks Brown represented First Tennessee in this action. Click here for National Association for the Advancement of Colored People (NAACP) v. Ameriquest Mortgage, et al., No. 07-CV-0794 (C.D. Ca. Feb. 1, 2010).

HUD released an update to its FAQs of the new Real Estate Settlement Procedures Act rules. Click here for the updated FAQs.

The FDIC announced a settlement with a credit card lender regarding its overlimit fee practices. The FDIC alleged the practices violated Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive trade practices. According to the FDIC, the lender assessed cardholders who had exceeded their credit limit during two billing cycles an overlimit fee during the first cycle and again on the first day of the second billing cycle without providing proper notice of this billing procedure. Under the terms of the settlement, the lender agreed to a civil penalty of $140,000 and restitution totaling $10 million to 283,000 credit card holders. Click here for a copy of the consent order containing the terms of the settlement.