Oct 28, 2008 4:00 pm US/Eastern
3 On Your Side: Revolving Credit Lines
PHILADELPHIA (CBS 3) ―
With the tight economy, many of us are leaning on revolving credit lines for a little extra help to get us through. But Your Money Team has found that some are having their extra credit lines frozen or are being asked to pay back all the debt at once.
3 On Your Sides' Jim Donovan explains.
Martin Miller considers his home equity line of credit an emergency fund of sorts.
"Really, kind of a backup plan," said Miller.
But recently, his lender notified him his line was frozen!
"I literally had to read it twice because I couldn't believe they were telling me, 'your account is now frozen, you no longer have access to it,'" said Miller.
The U.S. Treasury Office of Thrift Supervision says it's happening more and more. Lenders are looking at their own risk and cutting back on authorized credit lines.
Even in cases like Miller's, where there are no late payments.
So, can the lender really do that? It depends. Look at your home equity line agreement.
"That will spell out for them what step the lender is permitted to take," said April Breslaw with the Office of Thrift Supervision.
If your lender has the right to impose a freeze and decides to apply the brakes, you must be notified in writing and your case must meet one of three criteria.
The Miller's lender cited the first.
"The value of that dwelling, as the rules describe it, has to significantly decline," said Breslaw.
The second rule -- concerns that you may no longer be able to pay the debt.
"That tends to happen when there's been material change in the borrower's circumstances, for example, if the borrower files bankruptcy," said Breslaw.
The third criteria that must be met:
"If the borrower does something that harms the collateral, for example, fails to get insurance for it," said Breslaw.
Even worse, in some cases, people can be told to pay their loans in full at once!
"They can do that, but only in very narrow circumstances, if the borrower committed fraud or if the borrower failed to repay the loan," said Breslaw.
If your lender freezes your loan or calls in the debt and you disagree with the reasons, you can ask them to reconsider. If your lender doesn't reverse its decision, you can file a complaint with the government agency that oversees it.
Lenders are being encouraged by the treasury to avoid these drastic measures when possible.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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