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#16297 - 04/26/02 12:29 PM Changing home equity agreements
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Retail lending is interested in adding new fees to our home equity products. On an all-new-loans-going-forward basis, my response is "no problem". But the next question will be "Can we also change the terms on our existing lines?"

On the surface, I'd say no - we'd be changing contract terms without offering any consideration. I'll be digging into state law today (Michigan), but what's your opinion? Can we add new fees to existing equity lines?
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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General Discussion
#16298 - 04/26/02 02:42 PM Re: Changing home equity agreements
Al Miller Offline
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Al Miller
Joined: Oct 2000
Posts: 2,416
Pleasanton CA USA
Take a look at Reg Z ยง226.5b(f)(3)(iii) and (iv).

The change must unequivocally benefit the conusmer or be agreed to in writing.
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Al Miller, CRCM
Opinions expressed are my own and not necessarily shared by my employer.

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#16299 - 04/26/02 02:51 PM Re: Changing home equity agreements
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
Thanks, Al - I just ran across that section this morning. I appreciate the backup.
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#16300 - 04/26/02 04:20 PM Re: Changing home equity agreements
Howard Lax Offline
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Howard Lax
Joined: Jan 2002
Posts: 478
Bloomfield Hills, Michigan
This issue has also reared its head in unsecured lines. In Rossman v. Fleet Bank (R.I.) N.A., http://www.ca3.uscourts.gov/opinions/011094.txt, the court held that a bank may not advertise credit cards with "no annual fee" with the intention of charging an annual fee within a year. The court held that the disclosure of "no annual fee" was within the scope of the TILA prohibition against misleading fee disclosures. The court held:

"Because so many credit solicitations do include introductory rates and fees, it is reasonable to view a solicitation that promises fixed rates and no annual fees as describing an agreement under which the issuer intends to offer those terms until there is a reason to change them. A statement, therefore, that a card has "no annual fee" made by a creditor that intends to impose such a fee shortly thereafter, is misleading. It is an accurate statement only in the narrowest of senses--and not in a sense appropriate to consumer protection disclosure statute such as the TILA. Fleet's proposed approach would permit the use of required disclosures--intended to protect consumers from hidden costs--to intentionally deceive customers as to the costs of credit. Neither the language of the TILA itself, nor Regulation Z or the Official Staff Interpretations directs such a result."

Lenders who advertise "no fee loans" should be careful to include qualifications and conditions for the no fee loan offer. In Rossman, the credit agreement clearly stated that the terms of the credit card arrangement could be changed at any time. This term was not enough to persuade the court that the conditions of the "no annual fee" advertisement were conspicous enough to avoid misleading consumers into believeing that the lender would never impose an annual fee. Please note that a lender may not be able to defend its actions on the grounds that the borrower did not rely on the advertisement in making a decision to accept credit. See Turner v. Beneficial Corporation, http://www.law.emory.edu/pub-cgi/print_hit_bold.pl/11circuit/dec2000/99-13381.man.html.
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Howard A. Lax Lipson, Neilson, et. al. Bloomfield Hills, MI hlax@lipsonneilson.com

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