Lawyers are giving mortgage banks heartburn over a court ruling that has led to class-action suits across the country over some surprising additions to the list of finance charges that must be disclosed in home equity loans.

"It is outrageous what attorneys do to strip the capital [of mortgage banks] for their own benefit," Warren Lasko, executive vice president of the Mortgage Bankers Association, told reporters in Boston on Oct. 12.

The class-action suits Lasko blasted, several of which have been filed in Florida and Illinois, spring from a court decision in Rodash vs. AIB Mortgage Co. In this case, the 11th U.S. Circuit Court of Appeals in Atlanta held in essence that a $22 Federal Express charge for carrying a pay off of a pre-existing mortgage and a $204 Florida intangibles tax assessed and collected at the time of a loan and passed through to the borrower at settlement both were "finance charges" under the Truth in Lending Act. As such, a panel of the court ruled on March 21, these charges needed to be disclosed under that category in making home equity loans.

The full appeals court on June 16 declined to review the Rodash decision. Subsequently, mortgage industry lobbyists pressed Congress to pass a measure rending the decision moot.

The necessary amendment at first was attached to a housing bill, but when that failed to get out of Congress lobbyists hooked it onto a measure known as the Fair Credit Reporting Act. But that bill also failed to win approval before Congress went home earlier this month.

Lasko called the failure to get Rodash rendered moot "our single biggest disappointment with Congress" this year. The case, he said, "is causing more angst in the industry than any other lending issue."

The Senate will meet again in late November to debate the General Agreement on Tariffs and Trade. There's a possibility the chamber could take up fair credit again, but that is considered a long shot.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.