Wednesday, January 17, 2007

Class Certified, Summary Judgment to Plaintiffs in Option ARM Case

I've posted before about the potential for sales-practices litigation arising out of the sale of Option-ARMs and other specialized mortgages.  Yesterday, a federal judge issued an order in Andrews v. Chevy Chase Bank certifying a class and granting plaintiffs summary judgment on their Truth in Lending Act disclosure claims.  The judge's order is here; the disclosure statement is here.  The judge also ruled that the plaintiffs were entitled to rescission.  I wouldn't be surprised to see an appeal, but the District Court's opinion seems to be well reasoned.  If duplicated in other cases, the District Court's general approach to the Truth in Lending Act -- the TLA is a remedial statute, and disclosures have to be crystal clear to protect lenders -- could spell trouble for a lot of lenders.  As I observed in my first post on the subject (follow the link above), mediocre disclosure is not going to offer much protection in the consumer context.

I've posted plaintiffs' counsel's press release after the jump.

Ben Barros

[Comments are held for approval, so there will be some delay in posting]

A Federal Judge has certified a class action and ruled on summary judgment that the Chevy Chase Bank, FSB violated the Truth in Lending Act in connection with its “option” ARM loans.  The Judge has ruled that several thousand class members will be able to rescind their loans, a remedy whereby the bank will be ordered to return all of the wrongfully collected interest and closing costs it has received on the loans, and will be ordered to pay the plaintiffs’ attorneys fees.  The case has been pending for nearly two years. 

The loans at issue in the case are “option” mortgages, whereby the borrowers’ minimum payments were fixed during the first five years, but the actual interest rates being charged on the loans adjusted every month, beginning in the 2nd month of the loan program. 

In issuing Summary Judgment of liability in favor of the Plaintiff Class Members, the Judge ruled that Chevy Chase failed to properly disclose the payment schedule on the loans, failed to properly disclose the cost of the loans as an annual percentage rate, and failed to disclose the variable rate feature in the first 5 years of the loans.  The Judge further ruled that the bank inserted in their disclosures misleading  “teaser” rates that were only available for one month, and language directly above suggesting the loans were “5 year fixed.”

The Court has requested that the parties submit a suitable proposed notice to all class members.

Kevin Demet and Donal Demet of the law firm of Demet & Demet SC, Milwaukee, are representing the class members; they can be reached by telephone at (414) 291-0800 or by email at or

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Pay-option ARMs? I call them put-option ARMs.

Posted by: W.C. Varones | Jan 19, 2007 7:00:35 AM

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