A new class action lawsuit claims Santander Bank made millions of dollars by overcharging borrowers on their home equity line of credit loans.
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Brooklyn residents Mark and Devorah Smilow sued the lender last week in a New York federal court, seeking to certify a class of aggrieved HELOC borrowers spanning back to 2013. The homeowners say Santander Bank failed to lower their interest payments following the Federal Reserve's rate cuts in recent years, resulting in untold ill-gotten gains.
The lawsuit includes copies of the Smilows' monthly statements with their HELOC rates, and compares their rates to Santander Bank's concurrent press releases touting lower prime rates following six different Fed rate cut cycles. The homeowners claim to have paid rates 25 basis points to 50 basis points higher than what they should have following each cut.
"Mortgage companies are cheating consumers with variable interest rates by refusing to lower the rates consistent with the prime rates being lowered," wrote attorney Daniel Zemel of Zemel Law LLC on behalf of the plaintiffs, in an email Wednesday. "As a result, they are profiting millions of dollars and consumers don't even know it's happening."
A spokesperson for Santander declined to comment on the lawsuit, and the company has yet to formally respond to the complaint in court.
The Boston-based subsidiary of the Spanish banking giant stopped originating residential mortgages in the United States in 2022, although it remained a mortgage aggregator. It's in the midst of acquiring Webster Financial, which has its own mortgage business.
The Smilows are suing Santander for violating the Truth in Lending Act, and are seeking class certification for at least thousands of borrowers harmed by allegedly inflated HELOC rates.
The HELOC rate scheme
The complaint centers around Santander's HELOC agreements, specifically how it calculated its "daily periodic rate," its interest rate indexed to the prime rate. The Smilows' HELOC included an added margin of 50 basis points.
Santander allegedly determined customers' rates at the beginning of their billing cycle, rather than the indexed value available on the first business day of each calendar month. The purported lag resulted in rates slightly higher than what the borrowers should have been paying, according to the prime rate.
The lawsuit explains one rate situation following a Fed rate cut in September 2024 by 50 basis points. The Wall Street Journal published a new, lower prime rate the following day, and Santander touted the decline to an 8.00% prime rate in a press release. However, the bank in October charged the Smilows a pre-Fed cut interest rate of 9%, including the margin, when the rate should have been 8.50%, the suit said.
That pattern allegedly continued following six Fed rate cuts across 2024 and 2025. Further, the bank failed to credit the inflated interest rates to the borrowers' principal on subsequent bills, the Smilows claim.
Consumers have slammed lenders in recent years over purported consumer protection violations, as complaints over lending statutes are on the rise. Cases against home equity lenders are less frequent, although home equity investment providers have been particularly targeted in recent months.
