In the first lawsuit filed by homeowners against banks arising out of the Libor scandal, a group of five borrowers are alleging that 12 banks fraudulently manipulated the lending rate, thereby increasing the payoff amounts for the subject mortgage loans. The banks named in the lawsuit include Bank of America, Barclays, Citigroup, JPMorgan Chase and UBS, among others.
Libor, the London Inter-Bank Offered Rate, is a calculation that measures inter-bank lending and establishes the average rate that a bank would pay to borrow money from another lending institution. When issuing a mortgage loan to a borrower, the banks will use the Libor rate as a benchmark that will be adjusted upwards to account for the amount of risk a particular borrower poses.
In the present lawsuit, the plaintiffs ask the court to certify the lawsuit as a class action in an effort to leverage the parties’ efforts against the defendant banks. The lawsuit alleges that the banks were unjustly enriched through rate manipulation, which allowed them to increase the payments being made by borrowers on adjustable rate loans based upon the Libor rate. The plaintiffs further allege that, as a result of the defendants’ harmful conduct, they suffered financial losses and loss of equity in their respective properties. In addition to compensatory damages, the class seeks a judicial decree permanently prohibiting the banks from rigging the Libor rate. The deadline for defendants to respond to the complaint is early November 2012. (“Banks Sued by U.S. Homeowners Over Rigging of Libor Benchmark,” Bloomberg BusinessWeek, October 15, 2012).