Released: August 28, 2008

Wake-up call on home equity loans

Source: Michelle Singletary, Washington Post (Free Registration)

An increase in consumer complaints over the cancellation or reduction of home equity lines of credit has prompted one federal banking regulator to remind financial institutions about the laws governing this type of loan.

The Office of Thrift Supervision, which supervises savings associations and their holding companies, has warned institutions that if they curtail or terminate a home equity line of credit, the action must comply with federal laws and rules designed to protect customers, including regulations covered in the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act and the OTS nondiscrimination rule.

“We just wanted to give our institutions a heads-up that our examiners will be focusing on how the institutions are handling cutbacks in home equity lines of credit,” said OTS spokesman William Ruberry.

For example, with limited exceptions, Regulation Z of the Truth in Lending Act prohibits creditors from terminating a home equity line of credit and then accelerating repayment of the outstanding balance. Exceptions include situations in which the borrower fraudulently got the loan or failed to repay according to the terms of the loan.

 

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