Alert December 15, 2009

Federal Appeals Court Affirms Dismissal of Lawsuit Challenging Termination of HELOCs

The First Circuit recently affirmed the dismissal of 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 permitted the bank to terminate the HELOC and accelerate the outstanding balance if plaintiffs breached a material obligation of the agreement by, among other things, failing to meet its repayment terms. 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. Plaintiffs argued that this late fee provision created a 10-day “grace period” during which time the HELOC could not be terminated or accelerated, and relied heavily on the perceived inequity in the bank being able to terminate a credit line when it could not even impose a small late fee during that time. The Court affirmed the district court’s dismissal, finding that the unambiguous language of the agreement permitted the bank’s actions. The Court held that the late fee provision was separate and distinct from the bank’s right to terminate or accelerate the HELOC, and that it did not extend the time in which plaintiffs were required to make their payments. The Court also rejected plaintiffs’ claims under TILA and Massachusetts’ consumer protection statute on similar grounds. Goodwin Procter partner Jim McGarry represented National City Bank, both in the district court and in the First Circuit. Click here for Cunningham v. National City Bank, No. 09-1255 (1st Cir., Nov. 25, 2009).