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Court of Appeals allows class-action lawsuit against Provident
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Related Topics: BALTIMORE
BALTIMORE (Map, News) - A class-action lawsuit against Provident Bank’s alleged charging of prepayment fees on mortgages will go forward after the state Court of Appeals on Thursday overturned a lower court’s decision in favor of the bank.
The Court of Appeals ruled 7-0 that the Circuit Court of Baltimore City erred in ruling against Andrew Bednar, who filed suit in 2005 against Provident alleging that the bank charged him a penalty in violation of state law after he paid off a second mortgage within three years of taking out the loan.
In an opinion, retired Judge John C. Eldridge wrote that state law “unambiguously and flatly” forbids a prepayment charge, and to find an exception to the law “would be to violate the most basic principle of statutory construction.”
John A. Pica Jr., a lawyer with the offices of Peter Angelos representing Bednar, said the scope of the case, including the potential number of people affected and the amount of money involved, would now be determined as the case moves forward.
Provident Bank spokeswoman Vicki Cox said the bank sought and received an opinion from the state commissioner of financial regulation that she said confirmed the legality of the practice.
“Provident and other state-chartered banks have been offering home equity loans, where we pay the closing costs up front, for years,” Cox said.
Bednar claims he was charged $681 by Provident when he refinanced with another lender and paid off a $17,000 second mortgage two years after taking it out with the bank. According to court documents, in taking out the loan, the bank waived closing costs on the condition that Bednar not close the account for a minimum of three years. At the settlement of his refinanced loan, Bednar said the bank collected $681 in a variety of fees from his original closing cost.
Provident argued, and the lower court maintained, that the charge was imposed not at the time of Bednar’s refinancing but when he closed the second mortgage in 2003. The Court of Appeals disagreed.
“Neither the Circuit Court’s nor Provident’s theory, that the $681.00 charge was imposed ‘at the time of loan closing,’ is sound or justifies the collection of the $681.00 charge upon Bednar’s prepayment,” Eldridge wrote in his opinion.
acahall@baltimoreexaminer.com
Comments from Examiner Readers
1:07 PM MST on Thu., Dec. 20, 2007 re: "Court of Appeals allows class-action lawsuit against Provident"
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Examiner Reader said:
Reality is that banking is a for-profit business. To capture the business the bank pays the closing costs up front and uses the 3 years to recoup those costs and collect interest. If the client never uses the loan then there is the chance that the bank will not recover these funds. The client agreed to this and knowingly signed the documents. How can this be ruled as an unfair practice?
75 agree | 63 disagree
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Examiner Reader said:
Closing costs need to be paid either at the beginning, at the end, or by way of higher interest rates. There is no deal in having a "no closing costs loan", because there is no free lunch.
87 agree | 87 disagree
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Examiner Reader said:
That's great, so if we want to bank with a Provident or First Mariner, this will make us all pay the closing costs up front now just like a mortgage. The closing costs are clearly stated in the disclosure upfront so it's not like it's hidden. This is not protecting the consumer at all, it's promoting unfair competition since banks outside of Maryland can recover the closing costs if someone decides to refinance after taking the loan. This guy agreed to Provident waiving the fees, he knew the deal he was getting. Now he has ruined the deal for all of us.
80 agree | 70 disagree
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Examiner Reader said:
You could not be more wrong, the decision ensures that transparency needs to be shown in closing costs. Provident offered no closing costs, but charged fees to the borrower if they refinanced their loan sooner than the lender wanted. Clearly MD law states that pre-payment penalties are not allowed. If Provident needed to make a profit on the loan, then they should have included closing costs or higher interest rates to the borrower, not try to make money in the back end of the loan
67 agree | 82 disagree
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Business Owner said:
Typical Maryland liberal court decision: bend the law to stop businesses from engaging in a practice the Bank Commissioner ruled was legal. While superficially pro-consumer, this decision will hurt borrowers in the long run. Maryland has higher closing costs (read: taxes on a real estate transaction) than virtually every other state. Borrowers will have to pay these costs either from the $$$ they get from the lender, or out of their own pockets. Peter Angelos does to home equity loans what he's done to the Orioles, go team!
74 agree | 66 disagree
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