Ny Sues National Bank Subsidiary For Illegal Practices

Attorney General Spitzer today announced he has sued a subsidiary of a national bank for illegally threatening to foreclose on the home of a Rensselaer County homeowner.

The move by Spitzer is designed help a consumer who is facing the loss of his home. The action is also a direct challenge to federal banking regulators who have sought to insulate national banks from state consumer protection laws.

"The bank's actions in this case are preposterous," Spitzer said. "The consumer paid off his mortgage, but the bank continued to bill him for years, and now threatens to foreclose."

"The case also underscores the misguided policies of the Office of the Comptroller of the Currency (OCC), which has directed national banks to ignore state regulators attempting to enforce long-standing consumer protection laws."

The case arises out of a 1974 mortgage loan issued by Mechanics Exchange Savings Bank to a resident of East Greenbush in Rensselaer County. The loan was for $27,000 at 8.5 percent interest, to be paid over a period of 25 years at $201.31 per month. The loan was assigned several times, and since 1995 has been held by First Horizon Home Loan Corporation, a Texas-based subsidiary of First Tennessee Bank, a national bank.

The consumer made all 300 payments due under the loan. Since 1995, the consumer made payments to First Horizon by automatic debit from his checking account. Despite the fact that the final payment was made on October 15, 1999, First Horizon continued to debit $201.31 each month from the consumer's account.

The consumer was unaware that he was making payments in excess of those required under the mortgage because he thought mistakenly that his mortgage was for 30 years. In May 2003, First Horizon notified the consumer, for the first time, that because of an alleged error by Mechanics Savings in 1974, he should have been paying $16 more per month. Based on this alleged error, First Horizon advised the consumer that it was extending the maturity date of his mortgage to March 2010, thus requiring him to pay an additional $25,163.75.

The consumer, who had already paid $9,461.57 over the amount required under the mortgage, stopped the automatic debits going to First Horizon. The bank responded by threatening to foreclose on the home if the consumer did not pay $12,320.49 within 30 days.

The Attorney General's action seeks to halt First Horizon's illegal collection and foreclosure efforts. The action also seeks an order requiring First Horizon to make restitution to the consumer and provide him with a satisfaction of mortgage, as required by state law. The Attorney General also seeks civil penalties against the bank for its illegal and deceptive practices.

Prior to filing the lawsuit, Spitzer's office had attempted to resolve the matter with First Horizon. But when an attorney from Spitzer's office contacted the bank, bank officials said they could not discuss the matter because the OCC had issued a directive advising its officials not to talk to state attorneys general.

That directive, issued in November 2002, marked the beginning of OCC's effort to preempt state enforcement of consumer protection laws. Just last week, the OCC issued final regulations designed to prevent state attorneys general from enforcing most state laws against national banks. Spitzer and other attorneys general denounced the OCC the move and pledged to continue aggressive enforcement of state consumer protection laws.

This case is being handled by Assistant Attorneys General Mark Fleischer and Matthew Barbaro of the Bureau of Consumer Frauds and Protection.

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