Court Opinion

ID: 3736450
Source: CourtListenerOpinion
Date Created: 2016-07-06 07:02:01.612676+00
Date Added: 2024-06-11T13:57:29.525563
License: Public Domain

{¶ 24} Something seems terribly wrong if a bank can require payment of interest by its customers on a loan before the bank disburses the money. But Union Savings Bank, by charging interest during the three-day rescission period required by Regulation Z of the Federal Truth in Lending Act, is doing exactly that to borrowers who refinance their note and mortgage. In my opinion, this practice is substantively and procedurally unconscionable.
 {¶ 25} The practice of allowing the lender to accrue finance charges during the rescission period is not authorized if it is "otherwise prohibited, such as by state law." See Part 226, Supplement 1, Title 12, C.F.R. The majority correctly observes that unlike small loans and second mortgages, Ohio has no statutory prohibition against collecting interest before disbursing the loan funds. Furthermore, R.C. Chapter 1161, governing state savings banks, is silent.
 {¶ 26} However, the phrase in Part 226, Supplement 1, Title 12, C.F.R. "otherwise prohibited, such as by state law" is not limited to legislative enactments. The equitable defense of unconscionability has long been recognized under Ohio's common law. See Collins v. Click Camera  Video, Inc.,86 Ohio App.3d at 834-835, 621 N.E.2d 1294. Surely, the object of Regulation Z is not to turn a blind eye to a banking practice that is so unconscionable that it undermines fair standards and the integrity of the banking industry.
 {¶ 27} What is commercially reasonable about the bank's practice that generates two streams of interest on a single sum during the three-day rescission period? The bank's interpretation, allowing it to earn interest by investing the sum it retains for three days while simultaneously charging interest to the customer, is at odds with the purpose of the Truth in Lending Act, which is to protect consumers. See Section 226.1(b), Title 12, C.F.R. Had the bank placed the sum in a non-interest-bearing escrow account during the rescission period, arguably there would have been justification for charging interest to the borrower as a finance charge under Section 226, Title 12, C.F.R., Supplement 1, Section 23(c)(3). See, generally,Forgus v. First Fed. S.  L. Assn. of Lakewood (Dec. 6, 1979), 8th Dist. No. 39664, 1979 WL 210548.
 {¶ 28} Since the borrower does not routinely learn of the terms of the bank's refinancing agreement until the closing, this one-sided situation places the borrower in an unequal bargaining position with the bank. The majority's conclusion that the borrower can "look elsewhere for a bank that could provide a similar loan" amounts to nothing more than speculation. How realistic is it for the borrower to obtain a loan from another lender with an identical interest rate and the same points during the three-day rescission period? *Page 774 
 {¶ 29} The majority also justifies the interest charged by the bank over the three-day period as not an "overly burdensome amount of money" to the consumer. The focus of an unconscionability analysis, however, is on the bank's practices and not their effect upon the consumer. In the context of sheer numbers, the advantage to the bank can be significant when a period of steadily declining interest rates, as has occurred over the last five years, provides incentive for a large number of the bank's customers to refinance their mortgages for a better interest rate.
 {¶ 30} I would reverse the trial court's order granting summary judgment in favor of the bank and remand this case to the trial court for further proceedings. *Page 775