Court to rule on loans' fairness

N.C. Supreme Court considers lawsuit over hidden credit insurance costs

More than 800 borrowers in North Carolina say Bank of America owes them money because a company it oversaw made them home mortgage loans with illegal, hidden credit insurance.

For Bank of America and the borrowers, there is much more at stake than money. Experts say the case is about what's more important in North Carolina: Protecting consumers or protecting businesses.

The fight has gone to the N.C. Supreme Court, which could issue a ruling as early as Friday.

During arguments this month, John Jones, an attorney for the borrowers, told the court that Nations Credit, a subsidiary of Bank of America, illegally attached credit insurance to loans without telling customers. He said the bank should refund their money plus pay more as punishment for their bad practices. He contends that if the bank wins, predatory lending laws could be wiped out, and all consumers could be more vulnerable to rip offs.

John Culver III, an attorney for the bank, told the court that the borrowers signed legal loan contracts and should be held to them. He cautioned that if the borrowers win, anyone who has second thoughts about a contract will be able to come back and sue. He declined an interview about the lawsuit.

North Carolina is known for being good for business -- it has a strong work force, few unions and some tax advantages -- but also has been in the spotlight for consumer issues including strengthening predatory lending laws and pushing for tighter monitoring on social Web sites. James F. Smith, an economist at Western Carolina University, said that makes the Bank of America case hard to predict.

"I don't think you can tell one way or the other what the Supreme Court will say about the case," he said.

The lawsuit has brought out some big guns. The state chamber of commerce, a former chief justice and several trade groups are siding with the bank. A former assistant U.S. attorney general and Roy Cooper, the state's attorney general, are taking up the borrowers' cause.

Cooper, who often steers clear of legal battles not involving his office, says that consumers' confidence in the home loan process is "vital to [the state's] economy and business climate," and lenders owe them fairness.

'This was so unfair'

Juanita Richardson is one of the borrowers who says she was ripped off. She went to Nations Credit to get money to repair her house. The roof had been leaking incessantly, the kitchen floor puckered and the bathroom plumbing was faulty. She couldn't afford to repair the 63-year-old home -- a blue, wood frame house in Henderson where she raised her six children.

So, tired of makeshift fixes, she decided to borrow from Nations Credit because it was close to home and because she had cleaned offices there for a while.

She said a Nations Credit loan officer, with whom her daughter attended school, promised her lower payments if she rolled an existing loan into a new one with Nations Credit. Richardson said the lender never mentioned credit insurance.

Richardson took out a loan that totaled about $33,000. She used a portion to pay off the previous loan and got the repairs done. Richardson paid just above 10 percent interest on the loan. That was higher than the rate of her previous loan and higher than the standard rate at the time.

She wasn't aware that there might have been a problem with her loan until her daughter told her about a notice she saw in a newspaper about Nations Credit.

The ad was placed in the paper by John Jones, a Raleigh lawyer who was preparing a suit against the companies for tacking credit insurance onto home loans without telling borrowers about it.