Some might call it locking the barn door after the horse is long gone. In July the Federal Reserve tightened home mortgage lending regulations under the Truth in Lending Act of 1968 (TILA), responding to a housing downturn that exposed gaps in regulatory oversight. While the regulatory changes will have their largest immediate impact on lending practices, they’re also likely to lead to increased litigation, several bank regulatory lawyers say. “The Fed is enacting tougher rules that will enable private plaintiffs to have more arrows in their quiver to bring litigation,” says Womble Carlyle Sandridge & Rice partner Donald Lampe, who chairs the American Bar Association’s Consumer Financial Services Committee.
The new litigation targets are expected to be loan originators and lenders, who are likely to see an increase in TILA class actions after most of the new rules become effective beginning in October 2009. Under the toughened-up regulations, lenders are barred from making loans in the subprime market without taking into account the borrowers’ ability to repay them from income and other assets.
