Improper interest rate adjustment on loans: Failure to use latest index: Higher interest rates: Less reduction in principal: Settlement

Law Reporter, Jun 2001

Davis v. Northeast Savings, EA., Cal., San Diego County Super. Ct., No. 718101, Jan. 29, 2001.

Davis and others took out variable interest rate home mortgage loans from Northeast Savings and another bank. The loan agreements required the banks to adjust the payments using the latest cost of funds index. The loans were eventually sold to other banks. Northeast Savings and the other bank that originally issued the loans allegedly did not use the latest index to adjust the payments, and instead used older indexes. As a result, Davis and other borrowers were charged higher interest rates and their principal balances were not reduced as much as they should have been.

Davis and the other borrowers sued the banks, alleging they were negligent for failing to use the latest index to adjust the payments.

Defendants argued the loans had been properly adjusted and that they provided written notices to plaintiffs explaining the adjustments that were made.

The parties reached a settlement for $500,000 following mediation. Plaintiffs with "6/6" loans-where payment and interest rate amounts were adjusted every six months-received a set percentage of their original loan balance, and plaintiffs with "1/12" loans-where payment and interest rate amounts were adjusted every month-- each received $100.

Plaintiffs' Counsel

*Richard A. Huver, San Diego, Cal.

Arthur L. Shingler III, San Diego, Cal.