A borrower has filed a class action against Bank West of Walker, Mich., alleging the thrift's mortgage document preparation fees are illegal.
The lawsuit, filed this month in Kent County (Mich.) Circuit Court, alleges that Bank West practiced law without a license when its Grand Rapids, Mich., office charged Kristine Cowles $250 to prepare final loan documents, such as a promissory note and a mortgage.
Should the borrower prevail, Bank West may have to refund document preparation fees it has collected from all its borrowers over the last six years. Bank West officials would not estimate how much this totals, but the thrift's lawyer said the impact on the banking industry would be tremendous.
"Every lender in the country would have to change" its loan fee structures, said Lloyd C. Fell of Bodman, Longley & Dahling, Cheboygan, Mich.
Paul W. Sydloski, president and chief executive officer of the thrift's Grand Rapids-based parent, $182 million-asset Bank West Financial Corp., said the suit is baseless.
"We are continuing to charge fees and prepare documents," he said. "I don't think there is any way that we're practicing law."
Mr. Sydloski said the fees his thrift collects "defray the costs of processing the loans." If a judge rules those fees illegal, he said, the costs would have to be covered elsewhere, for example, by an increase in the loan's interest rate.
The complaint against Bank West is similar to one filed against Huntington National Bank, Columbus, Ohio, in January. The same law firm representing Ms. Cowles-Drew, Cooper & Anding, Grand Rapids-represents the plaintiffs in the Huntington suit, which also alleges that the bank wrongfully did legal work.
John E. Anding, a partner in Drew, Cooper & Anding, said the suits are meant to draw attention to banks' loan fees, which he said far exceed the cost of document preparation.
"Banks have no business charging a customer $250, $300, or $500 to fill out two or three forms," said Mr. Anding. "In my view, it should be free."
In what could be good news for both banks, a Michigan judge dismissed the case against Huntington last week. Judge Paul J. Sullivan found "no reasonable basis" for the charge that the bank had acted as the plaintiffs' attorney during loan processing.
Mr. Anding said he plans to appeal that decision, but Mr. Fell said he is confident the Bank West suit-filed in the same Michigan circuit court- will also be dismissed.
Mr. Sydloski said the thrift is prepared to fight the suit, though the legal costs may be significant.
"They're going after a small institution with less resources," he said. "But we're prepared to defend this all the way to the state Supreme Court."
Should the case drag on and legal fees soar, the class action would be another distraction for Bank West Financial, which has faced pressure from activist shareholders to sell itself.
Michael M. Moran, a bank analyst at Roney Capital Markets in Detroit, said the suit may make Bank West more vulnerable to take-over.
"We're operating in an environment where if you stumble you're like an injured deer walking into a circle with 1,000 hunters," he said.