WASHINGTON - The Senate this week approved House-passed legislation that would place a moratorium on class-action lawsuits against lenders for technical violations of the Truth-in-Lending law.
"The potential for massive rescissions, based on technical disclosure errors of as little as $10, creates a potential for liability that has been estimated to be as high as $217 billion," said Senate Banking Committee Chairman Alfonse M. D'Amato.
"This bill will permit time for careful consideration of this problem," the New York Republican added during Monday's floor debate.
A Senate Banking Committee employee said President Clinton is expected to sign the moratorium into law soon.
About 50 class-action suits have cropped up in the wake of last year's Rodash court ruling. In that case, a court held that homeowners may cancel their mortgages and get back the interest and fees they had paid if even minor errors were found in loan documents.
"To apply Rodash to the mortgage industry is like killing a mosquito with an atomic bomb," warned Sen. Christopher S. Bond, R-Mo.
The bill would impose a moratorium on Rodash-style class-action suits from the date of its enactment to Oct. 1, 1995.
Industry representatives applauded passage of the bill.
"It's welcome relief," said Philip Corwin, a lobbyist for the American Bankers Association. "It will provide short-term protection from abusive class-action lawsuits, but the mortgage industry still needs a long-term fix from Congress."
That long-term solution could come in the form of a broader bill introduced this year by Rep. Bill McCollum, R-Fla., that would make it more difficult for borrowers to back out of mortgage contracts.
House lawmakers hastily drafted and passed the moratorium April 4 in hopes of seeing speedy Senate passage before both chambers recessed April 7. However, Senate Democrats blocked the bill, delaying the floor vote until lawmakers returned this week.