Anyone who has obtained a bank loan since Oct. 28, 1974, may be due a refund. The Comptroller of the Currency recently determined that more than 1,500 national banks unwittingly overcharged borrowers millions of dollars in interest on consumer and mortgage loans. Some banks have already begun making refunds.
The overcharges occurred through misinterpretations of the complex Truth in Lending Act and its 96 pages of accompanying regulations. More than 88 percent of the 4,700 national than 88 percent of the 47,00 national banks were found to be in technical or substantial violation of the law, which regulates disclosure of true interest costs. Some of the technical violations -- such as the wrong size type in contracts -- would not entail refunds.
Most of the mistakes involved failure to include certain fees, such as loan origination points or life insurance charges, in calculation of annual percentage rates. The actual number and amount of refunds will not be known until the banks have completed their own examinations of all their records.
One large New England bank is said to have been ordered to refund $1 million to its customers. The Comptroller's office refused to identify that or any other bank at which its examiners found violations.
According to John J. Chipouras, director of consumer examinations, extensive violations were uncovered at the New England bank. A check of 27 other banks showed a similar pattern. Examination of all national banks, a two-year project, followed after 700 examiners were specially trained in consumer credit and civil rights laws. The entire truth-in-lending examination cost about $1.5 million, according to the Comptroller's office.
Since word of the mass refund leaked out last week, the Comptroller has had a number of inquiries from individuals seeking money back as well as from state banks complaining about refund requests. The Comptroller of the Currency regulates only national banks. The agencies that have jurisdiction over other federally insured financial institutions have not yet completed their truth-in-lending compliance examinations.
The Federal Reserve announced just last week that it would make permanent a two-year pilot program to train examiners in consumer affairs and civil rights laws and regulations.
Lump-sum refunds may be granted by national banks on loans that have been repaid or are outstanding. Banks may also refund the overcharge to date and adjust the terms of the remaining payments to meet the annual percentage rate originally stated.
The complexity of the Truth-in-Lending Act has caused numerous lawsuits since its passage in 1969. Legislation has been introduced to simplify the law, but has not yet passed. Only recently were the regulatory agencies able to formulate guidelines for its enforcement that were acceptable to all.