Hinshaw & Culbertson LLP has recently been asked to defend financial institution clients with respect to class action lawsuits to recover damages allegedly caused by calculating interest using a method known as “Bank Basis,” wherein interest is calculated using the actual number of days elapsed over a year of 360 days (365/360). In these cases, the Bank Basis method has been disclosed in the notes issued by the plaintiffs. However, plaintiffs are claiming that the Bank Basis method violates the Illinois Interest Act, the Promissory Note and Bank Holiday Act and the Illinois Consumer Fraud Act and Deceptive Practices Act. In addition, the lawsuits will include claims for breach of contract, common law fraud and for equitable relief.
The plaintiffs in these cases are seeking actual damages caused by the collection of additional interest using the Bank Basis method, as opposed to a 365/365 basis, on behalf of all class members, plus statutory damages under the Interest Act on behalf of all class members, attorneys fees and punitive damages.
In addition, statutory damages under Section 6 of the Illinois Interest Act are “an amount equal to twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater.” In other words, for a $1 million loan with a two-year maturity and a 6 percent interest rate, the damages would be $240,000 versus what would be the actual additional interest over the two year period of $1,680, which is the additional amount the person paid because the bank calculated interest on a 360 day year rather than a 365 day year.
We have advised our clients that they have a number of statutory, contractual and common law defenses and have achieved some satisfactory results on their behalf. The cost of defending this litigation may be covered one or more of the bank’s insurance policies, subject to applicable deductibles and coverage limits.
For further information, please contact Timothy M. Sullivan, Richard Polony, Michael D. Morehead or your regular Hinshaw attorney.
Tax Advice Disclosure: To ensure compliance with the Internal Revenue Service regulations governing the issuance of advice on Federal tax issues, we advise you that any tax advice in this communication (and any attachments) is not written with the intent that it be used, and cannot be used, to avoid penalties that may be imposed under the Internal Revenue Code.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. |