A federal district court in Chicago has given the green light to clients of JPMorgan Chase Bank to proceed with a consolidated suit alleging that their equity lines were yanked or reduced illegally, costing them billions of dollars in lost borrowing power. Judge Rebecca Pallmeyer rejected the bank’s motion to dismiss the case, clearing the way for a possible giant class action.
The litigation pulls together eight separate suits seeking class certification filed by homeowners in California, Minnesota, Illinois, Texas, Arizona and Ohio. It is considered a bellwether test of the rights homeowners enjoy under the Truth in Lending Act and state consumer protection statutes when they take out equity lines of credit.
But it also shines light on the controversial computerized tools many lenders use to make quick, inexpensive assessments of property values in lieu of more costly professional appraisals. Suits on similar grounds are pending against other major lenders, including Wells Fargo & Co., GMAC Mortgage and Citibank, according to attorneys.
The plaintiffs’ lawyers not only are challenging JPMorgan Chase’s legal right to rescind or limit credit lines without adequate documentation that property values have dropped “significantly” — as required by the truth in lending law — but are also mounting a side attack against automated valuation models that they contend are frequently inaccurate and unreliable.
The computer valuations used by JPMorgan Chase were found to be “grossly in error,” based on subsequent physical appraisals, said Steven Lezell Woodrow, a partner with Edelson McGuire, the Chicago law firm representing the plaintiffs.