Alert January 13, 2009

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).