The Maryland Court of Appeals decision that state-chartered banking companies may not recover home-equity loan closing costs if a loan is retired within three years is quite stunning. For years state banks have required borrowers to repay appraisal and courthouse filing fees if they close an equity line or pay back a loan within three years. When banks extend home-equity credit they incur ~$1,000 in costs usually paid by the borrower. They agree to waive the costs -- and extend the loan closing-fee-free -- if the borrower agrees to continue as a customer for three years.

The court's ruling will make it difficult for state banks to extend equity loans without closing costs. It really makes it difficult for them to compete with (Maryland-based) federally chartered banks, which can still require closing-cost repayment if loans/lines are repaid/closed early. I like the idea of minimizing prepayment penalties for first mortgages if the borrower pays the closing costs. But 2nd mortgages and home-equity lines extended closing-cost-free should be different. (Full disclosure: I opened a home-equity line with Allfirst a few years back and had to repay the closing costs when I moved before three years were up. As I recall, the penalty was $1,200 or so. But I was [more or less!] happy to pay because these were genuine costs the bank had incurred and I had agreed to the deal.)

"This is a very satisfying win for consumers," said M. Albert Figinski (who represented the plaintiff) in Laura Smitherman's story in The Sun. Sorry, it's another satisfying win for trial lawyers and that's about it. The money at stake for this particular plaintiff -- $680 -- is confetti. Look for Figinski and his boss, Peter Angelos, to try to certify this as a class action with new plaintiffs.