Busted: Bankers and The Global Economy

June 30, 2008

Good News for Cheated Homeowners?

In a lawsuit in California, U.S. District Judge Lynn Adelman ruled that the Chevy Chase Bank had violated the Truth in Lending Act or TILA, and that thousands of other Chevy Chase borrowers could file suits or conduct a class action lawsuit.

The Truth in Lending Act, a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs, lets consumers seek rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation.

The judge also found that cheated borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day now.

The idea of canceling tainted loans to stem a tide of foreclosures is catching on. A lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corporation mortgages originated under “unfair or deceptive practices.”

State and federal regulators have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.

Banking associations are shocked. If the Court of Appeals agrees with Judge Adelman’s decision, they predict “confusion and market disruption” as banks curtail lending further. Heck, justice under reasonable law is justice. Fraudulent bank activity should be curtailed and punished.

“Class certification of rescission claims would saddle the mortgage lending industry and secondary market with billions of dollars of class action exposure for supposed violations of TILA that do not give rise to any actual damages,” the financial services associations wrote in an amicus brief.

What a joke! Banking and financial services claim that no harm has been done? The economy has been sacked and thousands of homeowners are already homeless because their fraud or at least in part due to predatory lending.

Lenders hope to scare the judiciary into banning class action rescissions and lawsuits against banking institutions for fraudulent loan activity because they were unable to convince Congress to do so in the 1990s.

However, an adverse ruling for borrowers would cut off an important remedy. Borrowers would lose the opportunity to use legal rescission to save their homes from foreclosure or to rescind their mortgages and refinance into affordable ones. Further, we would be one step closer to a socialist oligarchy. Clearly, this is an important ruling since legal precedence is considered important in the United States.

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