In this case, a jury awarded the debtor $46,225 plus punitive damages of $100,000.

Here, Pioneer Savings loaned $39,000 to Lannigan secured by the debtor’s real estate.

The initial interest rate was “8 1/2%”. The loan documentation provided that Pioneer:

… may hereafter decrease said interest rate and may also increase the rate upon giving not less than 30 days written notice prior to the effective date of such increase by letter mailed to the last known address of the [borrower].

As interest rates went up, Pioneer raised the interest rate to nine and one-half percent, then to ten and three-fourths, then to fourteen and three-fourths and, eventually, to fifteen percent. When interest rates began to decline, Pioneer did not lower Lannigan’s interest rate, although other customers at Pioneer did receive a reduction on their interest rates.

When Lannigan’s interest rates rose, Pioneer advised her to continue making regular monthly payments and informed her that it was not necessary to increase the monthly payments.

As a consequence of the debtor continuing with regular payments while the interest rate increased, the loan went into negative amortization.

Pioneer never informed the debtor that the loan was in negative amortization and would never be paid off with the regular monthly payments. Although Lannigan paid more than $64,000 to Pioneer on this loan for more than 15 years, according to Pioneer’s records, there was still a balance of nearly $63,000 owing on the original debt of $39,000.

When Lannigan discovered the negative amortization, she sued Pioneer for violating the Truth in Lending Act. After trial, the jury held in favor of Lannigan.

Pioneer was ordered to return $46,225 to Lannigan as well as pay punitive damages of $100,000 due to the careless actions of Pioneer which resulted in the negative amortization of the loan. Juanita Lannigan v. Pioneer Savings & Loan, et al. (Court of Appeals of Ohio, Case No. 92-CA-14).

Author: Charles R. Harroun, Attorney at Law