As a result of many prominent stories and complaints from consumers, lender liability is a broadly accepted form of consumer protection. The basic premise of lender liability is that lenders must treat their borrowers fairly.
Many consumers have had to file lawsuits against lenders due to allegedly unfair practices. Not only does this hold lenders accountable for that particular case, but it can also lead to new rules and practices that protect all consumers from future harm.
Three primary components of lender liability give protection to consumers and recourse if a lender breaches their responsibility. These components include breach of contract, the role of fiduciary relationships, and inappropriate collateral sales.
Loan agreements are very similar to any other contract between two or more parties. This means that either party can come after the other in a legal dispute if the contract is breached. For a long time, lenders were the ones most likely to come after borrowers, but the advent of consumer protection with lender liability means that consumers are taking more action against their lenders due to breach of contract.
The second method through which consumers can file a lawsuit against a lender for liability is when they can illustrate there was a fiduciary relationship between the parties in a contract and that it was breached. This is harder to prove, as many lenders want to minimize their risk in this fashion and therefore keep the relationship at an arm’s length as it would be with a typical creditor and debtor.
Lenders can also be named in lawsuits if they inappropriately sell collateral after a lending relationship has begun.
If the loan was wrongfully disposed of or repossessed, then the lender may not be able to pursue damages or to collect on a deficiency.
Some of the most important aspects of a lender liability claim boil down to evidence and damages.
As consumer protection continues to evolve and remain in the public spotlight, it becomes the role of those consumers who have been harmed to gather evidence and present it to the courts.
Situations in which banks are most often held liable include when they have made a loan to someone in bad faith, when they have refused to advance new credit opportunities or loans after promising to do so, when they have a controlling interest in a lender’s business, and when they focus too much on a borrower’s assets without appropriate procedure and notification.
If a lender intends to move forward with the collection of collateral assets after a borrower has defaulted, it is important for that lender to follow every rule of law. Failure to do so could lead to a consumer protection claim filed by the borrower. When lenders overstep their bounds, they could be held liable in court and required to pay damages to the borrower.
If you or someone you know has already been affected in a lender liability case, set aside time to talk to a lawyer about your situation.
The attorneys at McDonald Worley are currently investigating claims from borrowers who have been harmed by these practices. Fill out the form on this page to learn more.