Capital Briefs: Ruling Eases Banks' Legal Burden on Rebates

The federal appeals court in Chicago has held that banks don't have to describe in detail their policies for refunding unearned interest on loans and leases that are terminated early.

The U.S. Court of Appeals for the Seventh Circuit said in a July 11 decision that banks must disclose the name of the method used to calculate the refund. But the court said institutions do not have to describe how the method works, saying that explanations would require so much detail that they would become meaningless.

But in a blow to banks, the court also found in Channell v. Citicorp National Services that lenders can be liable if they don't follow the method disclosed in the contract for calculating interest refunds, even if the new method benefits the consumer.

Michael Crotty, deputy general counsel for litigation at the American Bankers Association, said the message for banks is clear. "Don't give the customer a break because they will use that against you," he said.