The class action alleges that Washington Mutual Bank and its new parent, JP Morgan Chase engaged in mass reductions of Home Equity Lines of Credit (HELOC) limits and even suspended accounts by falsely claiming that customers' incomes had been reduced, as a way to justify the suspensions.
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According to the federal lawsuit, the banks froze millions of dollars in home loans that way.
The suit alleges that Chase and WAMU had no reasonable basis to conclude that their borrowers' finances had in fact declined and that the banks broke their written promises to provide customers with two weeks' notice to substantiate their incomes before taking such action.
The suit was brought on behalf of Jeffrey and Jenifer Schulken who allege that their HELOC account was suspended due to a supposed inability to pay the loan. But the couple - who run their own small business - continued to earn the same amount of money and never missed a payment.
Although federal regulations permit account suspensions when a customer's financial circumstances adversely changes, such action requires both a material change in a borrower's financial situation and the creditor's reasonable belief that the borrower will not be able to repay the HELOC account as agreed.
The lawsuit alleges that Chase and WAMU had no such basis here.
"The Schulkens did everything right. They work hard, pay their bills, and have always honored their relationship with Chase/WAMU," says attorney Jay Edelson, whose law firm, KamberEdelson LLC, represents the Schulkens. "What the banks did to them, and countless others, is simply not right."
The lawsuit comes on the heels of two other class actions recently filed against Chase and WAMU alleging the banks have been systematically - and unlawfully - reducing and freezing customer's home equity credit lines.
The first, Kimball v. Washington Mutual Bank, Henderson Nevada et. al. 3:09-cv-1261 (S.D. Cal.) is also brought by KamberEdelson and challenges the banks' use of faulty Automated Valuation Models to create a pretext for credit limit reductions and account suspensions.
According to the lawsuit, Michell Kimball, a local businesswoman, first learned her HELOC had been frozen when a check she had drawn on the line had been dishonored and, when she called customer service, they informed her that an AVM showed the property value had significantly declined. Using the banks' chosen appraiser, an on-site examination showed the property was worth 1.5 times the AVM's estimate.
The second lawsuit, filed this week by Sherman Oaks attorney David Parisi, is brought on behalf of Garden Grove resident Michael Walsh. Mr. Walsh alleges Chase and WAMU reduced his credit limit after claiming his home had significantly declined in value. In addition to challenging the banks' use of a faulty AVM, the Walsh case further takes issue with the banks' practice of freezing HELOC accounts based on lower declines in value than those permitted under the federal Truth in Lending Act.
To download a copy of the PDF lawsuit, click here.
Consumers continue to report similar experiences involving cut off credit lines, jacked interest rates and an inherent inability to get aid from their lenders or mortgage servicers. These unfair practices continue to significantly harm credit scores and further delay our economic recovery.
Click here to read my Sun-Sentinel Talk Back South Florida blog: The recovery's missing life line: a line of credit.
(Also find a variety of links to similar homeowner and consumer complaints that illuminate why consumers are fed up with big banks -and their policies!)
UPDATES you may find of interest:
See Jan 2010 Update
Chase/WAMU foreclosure case dismissed; FL Judge finds fraud.