Good news is on the way for homeowners who held home equity lines of credit (HELOCs) with Citibank. Many customers’ HELOCs were suddenly suspended or canceled over the last four years in response to the sudden drop in home values. Now, as the bank faces a class action lawsuit, it has decided to reinstate many HELOCs upon customer request.
For decades, homeowners opened HELOCs when they had home equity, which refers to the positive difference between the total value of one’s home and the amount mortgaged. A HELOC was an easy way for customers to create lines of credit with a bank and then draw upon the money when needed. The HELOC was especially desirable because it didn’t require closing costs and it carried a low interest rate, typically tax-deductible. It made the HELOC a simple and economical choice for many.
People often relied on these lines of credit to pay for large expenses, such as consolidating credit, paying medical expenses, financing a child’s college tuition or making home improvements. And in the wake of the dissolving job market in recent years, many families relied on HELOC to pay emergency expenses after a sudden job loss.
Changes After the Housing Market Crash
As the American economy began to struggle in 2007 and houses lost substantial value all across the country, major banks began to revoke their extension for HELOC with its customers.
In early 2008, Citibank, a unit of Citigroup Inc., began to send out notices withdrawing the lines of credit to protect the bank from losing money during a time of financial crisis.
A lawsuit was filed against Citibank in 2009 contending the bank violated the federal Truth in Lending Act and California’s Unfair Competition Law. The lawsuit protested the en masse freeze on accounts which led to suspending many borrowers’ HELOCs without legal basis to do so.
The bank was also accused of using computerized valuation models for geographical areas instead of focusing on each costumer’s actual home value. This modeling, the suit contended, was not necessarily an accurate means for determining true value of a property. The lawsuit also implied that Citibank was not only trying to limit its exposure to the pending housing market risks, but also trying to eliminate its loans which below-market interest rate.
In response to the class action challenge in San Francisco federal court, Citibank has opted to revise some of its home equity practices and give customers a chance to reinstate their accounts or recover some fees.
As part of the agreement, those Citibank customers who incurred an early closure fee after receiving a suspension or reduction notice will have a chance to receive cash payment of $120 from Citibank. The class action lawyers are expected to be paid $1.2 million, which includes reimbursement for expenses, and Citibank has agreed to pay an incentive award of $36,000 divided into six equal parts to each Class Representative in the suit.
Citibank also has agreed in the proposed settlement to notify borrowers of their right to challenge an account suspension, improve suspension notices and restore customers’ access to their suspended HELOC accounts.
In addition, the bank has arranged in the settlement to work with its approved appraisal vendor for reinstatement reviews and to expand disclosures in notices in the future, although Citibank admits no wrongdoing in the settlement.
The settlement, which currently awaits court approval, would affect borrowers nationwide. It will cover all those with suspended or reduced Citibank HELOC accounts from January 1, 2008 to January 31, 2012.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- MacLean, M. (2012, August 31). Citibank Settles Home Equity Borrower Class Case. Retrieved from http://www.trialinsider.com/?p=2110
- Chesney, M.M. (2012, August 31). Plaintiffs’ Notice of Motion and Motion for Preliminary Approval of Class Action Settlement Agreement. Retrieved from http://www.trialinsider.com/pdf/HELOCsettle.pdf
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