Banks nationwide are facing an increasing number of class action lawsuits related to the suspension or reduction of home equity lines of credit (HELOCs). It is important for banking institutions (and the attorneys who represent them) to understand the nature of these claims and the strategies employed by the plaintiffs’ attorneys.

WHAT IS HAPPENING

Plaintiffs’ firms across the country are filing putative class actions against banks related to alleged damages arising out of alleged unilateral modification of HELOCs. The Chicago-based firm of Edelson McGuire LLP (formerly KamberEdelson LLP) is leading the charge, filing several cases in California and Illinois. The plaintiffs’ bar has also created a Web site (www.heloc-complaints.com) to collect new claims. The site links to www.classactionconnect.com, a site used by Edelson McGuire to communicate with potential plaintiffs.

The class action complaints assert causes of action for violation of the Truth-in-Lending Act, 15 U.S.C. 1647(c)(1), and Regulation Z, 12 C.F.R. 226.5b(f)(3), breach of contract, breach of implied covenants, and violation of state consumer protection laws. The plaintiffs allege that banks, in an effort to shield themselves from the risks associated with the fragile U.S. housing market, have used false pretenses to suspend and reduce credit limits on HELOCs. A representative case is Schulken v. Washington Mutual Bank, Henderson, Nevada, et al., Case No. 09-cv-02708 (N.D. Cal.). There, the putative class representatives claim that their $250,000 HELOC was suspended without warning even though there has been no material change in their income and even though the defendants did not have a reasonable basis for concluding that plaintiffs would not be able to meet the terms of their loan agreement. They are attempting to certify a nationwide class consisting of: “All WAMU and Chase HELOC borrowers in the United States who received from WAMU or Chase a letter requesting the borrowers submit financial information within 14 days who then had their lines suspended or their credit limits reduced prior to the expiration of the 14 day period.”