David Levin and his wife had a home equity line of credit (HELOC) with Citibank for $144,000, secured by their home mortgage. In March 2008, Citibank reduced their credit limit by more than $80,000 to their current balance. The Levins did not learn of the reduction until they received a letter the next day—after they had written two checks that Citibank declined—saying that home values in the area, including theirs, had declined and no longer supported their line of credit. The bank based its decreased-value determination on its automated valuation model, which has since been widely criticized for manipulating house values to weed out loans with low interest rates. A subsequent appraisal confirmed that the value of the Levins’ home had declined by less than 10 percent.
Citibank also sent a letter to Gary and Marie Cohen, telling them their credit line was suspended and could not be reinstated unless they obtained an appraisal confirming their property’s value had not declined significantly. Although Citibank’s appraiser found that the value had decreased, an independent appraiser found it had actually increased by $50,000. Mark Winkler and his wife also received a notice, even though they had previously paid off their mortgage, leaving them with $600,000 in secured equity.
The Levins, Cohens, and Winklers filed class actions against Citibank, and the suits were consolidated. The plaintiffs alleged Citibank violated the Truth in Lending Act and its implementing regulation, Regulation Z, which prohibit changing HELOC terms unless the value of the dwelling that secures the credit “significantly declines.” Regulation Z defines a significant decline as a value that is reduced by 50 percent. The federal government has also warned that reducing credit limits in a geographic area without assessing the value of each loan’s collateral violates Regulation Z. The plaintiffs also claimed breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of multiple California state laws.
Citibank agreed to pay each class member $120. It will also refrain from changing HELOC suspension and reduction policies in any way that would be less beneficial to borrowers. Any notices that a HELOC is being suspended or reduced must include the present value of the property as calculated by Citibank and the appraisal value necessary to reinstate the credit line. The bank will also advise these borrowers that they may seek reinstatement if they can produce an appraisal showing the value hasn’t significantly declined or if they can prove they have significantly paid down their mortgage balance.
Citation: In re Citibank HELOC Reduction Litig., No. 3:09-cv-00350 (N.D. Cal. Nov. 6, 2012).
Plaintiff counsel: Sean Reis, Rancho Santa Margarita, Calif.; Jay Edelson, Steven I. Woodrow, and Evan M. Meyers, all of Chicago; James R. Patterson and Alisa A. Martin, both of San Diego; David C. Parisi and Suzanne L. Havens Beckman, both of Sherman Oaks, Calif.; and Gene J. Stonebarger, Folsom, Calif.