Chase Hid Key Reason It Cut Homeowner's Credit Line

The fact that Chase Home Equity cut Gary S. Klein's $334,000 home equity credit line by about half is not all that unusual. Banks that last year were begging people to borrow are now backpedaling, trying to reduce their risks.

But what is unusual is that Chase tried to mislead the Stamford attorney into believing that the reason his credit line was being reduced was solely that it believed the value of his home had dropped.

The other substantial reason was that Chase had changed the formula it used to determine the maximum amount of money it would loan an individual and did not want to tell its customers.

And when an angry Klein went to another bank for a credit line and sought to terminate his account with Chase, the bank demanded that he pay the $400 penalty for early termination.

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It was only after Klein filed a complaint with the state Department of Banking and threatened a lawsuit that Chase waived its penalty charge.

Chase Home Equity, a division of JPMorgan Chase Bank, has recently told 150,000 other customers across the country that they, too, would have their home equity loans cut and, in all cases, simply pointed to the drop in home values as the reason behind the change.

Klein and some other attorneys believe that the reason Chase did not want to alert customers about the change in its loan-to-value formula is because unilaterally changing the terms of the credit agreement might violate federal banking regulations and would prevent Chase from collecting the $400 early termination fees from disgruntled customers.