Dugan, et al v. Lloyds TSB (US case, Northern District of California, San Francisco Division.)

Posted on 15/09/2014 · Posted in Expert Witness, Financial Litigation

US Litigation focuses on consumer rights in complex loans

Appropriate lending practices when selling structured financial products to consumers sat center-stage in Dugan v. Lloyds TSB, filed in the United States District Court for the Northern District of California. The litigation arises from so-called ‘dual currency’ real property loans made by Lloyds in the US, labeled as International Mortgage Services (“IMS”) loans. These consumer loans were initially stated in U.S. dollars but could be redenominated into foreign currency at the borrower’s discretion, subject to a cap of 120% of the original principal. The loans also included a variable interest rate set at 1.5% above Lloyds’ “cost of funds”.

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From 2006 to 2012, the American dollar depreciated by more than 40 percent against the Japanese yen reducing IMS borrowers’ loan-to-value ratios. Borrowers allege that this depreciation led Lloyds to increase their loan balances to more than 20% higher than the negotiated principal cap. Lloyds, in turn, denies any cap on principal. At the same time, though institutional borrowing rates fell, Lloyds more than quadrupled its ‘cost of funds’ by passing through a liquidity transfer pricing charge from Lloyds Banking Group. Borrowers’ interest rates were thus increased by almost 50% within a three year period. Borrowers sought class certification; the U.S. Court certified a principal cap class but declined certification of a cost of funds class as defined by Dugan plaintiffs.

The Dugan class claims regarding the violation of the 120% principal cap were settled by Lloyds for USD$1.55 million. The parties stipulated to dismissal of the individual claims. Two putative class cases alleging similar breach of contract claims for manipulation of the cost of funds for IMS loans are pending in Hawaii and Washington.

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