Consumer Financial Services Alert - January 13, 2009 January 13, 2009
In This Issue

Federal Court Dismisses Lawsuit Challenging Termination of HELOCs

A Massachusetts federal court dismissed a putative nationwide class action alleging that a bank breached its contracts and violated the Truth in Lending Act and state consumer protection law by terminating home equity lines of credit when payments were only a few days late. The agreement at issue provided that National City Bank could terminate the HELOC and accelerate the outstanding balance due if plaintiffs breached a material obligation of the agreement by, among other things, failing to meet the repayment terms of the agreement. The agreement separately provided for a late fee in the event that the minimum payment was not received within 10 days of the due date, which plaintiffs argued created a 10 day “grace period” during which time the HELOC could not be terminated or accelerated. Alternatively, plaintiffs argued that the alleged grace period meant the contract lacked a “time is of the essence” provision. The court rejected plaintiffs’ arguments and adopted National City’s position that the unambiguous language of the agreement made clear that the late fee provision was separate and distinct from National City’s right to terminate or accelerate the HELOC when payments were received beyond the due date, and that National City was within its rights to terminate plaintiffs’ HELOC. Goodwin Procter partner Jim McGarry represented National City. Click here for a copy of Cunningham v. National City Bank, No. 08:10936-RGS (D. Mass. Jan. 7, 2008).

Federal Banking Agencies Issue Final CRA Q&A Guidance

The federal banking agencies published final new and revised Community Reinvestment Act questions and answers that, among other things, encourage banks to set up foreclosure prevention programs for low- and moderate-income homeowners for CRA credit. The Q&A guidance also addresses activities financial institutions can undertake in concert with minority- or women-owned financial institutions or low-income credit unions that would receive favorable CRA consideration. In addition, the agencies proposed one new Q&A and two revised ones. The proposed new Q&A would provide examples of how to determine if a community service is targeted to low- and moderate-income individuals. The two revised Q&As concern allowing pro rata CRA consideration in certain circumstances for an activity that provides affordable housing aimed at low- or moderate-income individuals. The comment deadline for the proposed Q&As is March 9, 2009. Click here for the guidance.

HUD Provides Guidance on the Implementation of SAFE Mortgage Licensing Act

HUD issued guidance on how it will interpret state compliance with the SAFE Mortgage Licensing Act. The SAFE Mortgage Licensing Act requires state licensure or registration of loan originators. The guidance indicates that HUD has reviewed the state model bill prepared by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators and concluded that states adopting that bill will be in compliance with the SAFE Mortgage Licensing Act requirements. The guidance also includes a broad interpretation of the SAFE Mortgage Licensing Act definition of “loan originator.” Click here for the guidance and here for the state model bill.