Pentagon Federal Credit Union, also known as PenFed, granted to its employees the right to apply for a fixed-rate mortgage or refinancing loan at a discount from its regular rates for ordinary mortgage customers. But the complaint alleges that PenFed did not make the required disclosures to the employees who took out these mortgage loans, because it did not treat the loans as variable, disclosing that the interest rates only applied as long as the borrower remained an employee of PenFed.
The class for this action is all current and former PenFed employees to whom PenFed issued a preferred rate loan secured by a residence during the applicable statute of limitations.
Until recently, mortgages were offered at very low rates of interest, with many lenders, including PenFed offering what the complaint says were “akin to once-in-a-lifetime opportunities for borrowers … to purchase or refinance residential real estate at historically low-interest rates.” The complaint alleges that PenFed presented these as fixed-rate mortgages in the initial good-faith Loan Estimate and the Closing Disclosure presented to the borrowers.
PenFed’s mortgages, the complaint claims, are subject to the federal Truth-in-Lending Act (TILA), which is implemented by Regulation Z. TILA requires that certain disclosures be made to the borrower by the lender.
The complaint alleges that the above loan disclosure documents, among other things, were supposed to “set forth the loan amount, interest rate, loan term, purpose of the loan, whether a fixed or variable loan product is presented, and loan type.” But the complaint alleges that the documents did not disclose that the mortgages were actually variable-rate mortgages, with the rates changing if the employee left employment at, or was terminated by, PenFed.
According to the Consumer Financial Protection Bureau (CFPB), the complaint claims, mortgages like the PenFed mortgages at issue in this case are considered variable-rate mortgages. The complaint quotes the Official CFPB Staff Commentary for a portion of TILA as providing, as an example of variable-rate transactions, “[p]referred-rate loans where the terms of the legal obligation provide that the initial underlying rate is fixed but will increase upon the occurrence of some event, such as an employee leaving the employ of the creditor, and the note reflects the preferred rate.”
However, the complaint alleges that PenFed did not treat the mortgages as variable-rate loans in terms of its disclosure documents: PenFed’s “sole disclosure of this condition underlying the preferred rate transaction was the insertion of an ‘Employee Addendum/Rider’ to the preferred rate transaction at the time of closing.”
“Under TILA,” the complaint claims, “PenFed is statutorily required to disclose through its Loan Disclosure Documents to its preferred rate employee borrowers, among other items, whether its mortgage loans are variable, what conditions would trigger a change to the applicable interest rate, and amount of time required for a notice of change in rate.”
Article Type: LawsuitTopic: Loans
Most Recent Case Event
Pentagon Federal Credit Union Disclosures for Employee Mortgages TILA Complaint
December 5, 2022
Pentagon Federal Credit Union, also known as PenFed, granted to its employees the right to apply for a fixed-rate mortgage or refinancing loan at a discount from its regular rates for ordinary mortgage customers. But the complaint alleges that PenFed did not make the required disclosures to the employees who took out these mortgage loans, because it did not treat the loans as variable, disclosing that the interest rates only applied as long as the borrower remained an employee of PenFed.
Pentagon Federal Credit Union Disclosures for Employee Mortgages TILA ComplaintCase Event History
Pentagon Federal Credit Union Disclosures for Employee Mortgages TILA Complaint
December 5, 2022
Pentagon Federal Credit Union, also known as PenFed, granted to its employees the right to apply for a fixed-rate mortgage or refinancing loan at a discount from its regular rates for ordinary mortgage customers. But the complaint alleges that PenFed did not make the required disclosures to the employees who took out these mortgage loans, because it did not treat the loans as variable, disclosing that the interest rates only applied as long as the borrower remained an employee of PenFed.
Pentagon Federal Credit Union Disclosures for Employee Mortgages TILA Complaint