Regulatory relief may be elusive, but lenders got a goodly dose of legal balm recently when President Clinton signed amendments to the Truth in Lending Act drafted to counteract the notorious Rodash decision.

Rodash refers to a Florida case in which homeowner Martha Rodash successfully sued to rescind her mortgage. It seems her lender, AIB Mortgage Co., had inadvertently allocated a $22 Federal Express courier fee and $204 in state tax as "amount financed," rather than as a finance charge. When a federal appeals court upheld the decision, a flurry of class-action suits followed; their goal was to permit rescission wherever banks had made technical mistakes, no matter how minor, in the loan documents. (Rodash has since been settled, but its legacy lives on.)

Under the new law, the "tolerance," or margin for a lender's error, that would allow civil liability is boosted from $10 to $100-a significant move, since for rescission to be imposed, tolerance must be at least 0.5% of the loan amount. The law also sets maximum damages at $2,000-and limits recovery of actual damages to individuals who can show they suffered a loss. Moreover, retroactive relief is provided for some 55 pending class action suits, most filed in Florida and Illinois.

Those class actions had posed a potential threat to mortgage lenders of more than $220 billion, according to a Moody's Investors Service study. Edward Schmelzer, a law partner with Bryan Cave in Washington who worked for a year helping draft the Rodash reform, says he expects plaintiffs' attorneys to challenge that relief on constitutional grounds. If a judge agrees, another appeal may be in the offing.

"Mortgage lenders want certainty," Schmelzer says. Plenty of lawyers are eager to pounce on technical errors, he argues, and if the rules are made clearer, attorneys have fewer targets.

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