Keep Rejected Loan Applicants In The Loop Or Face Possible Punitive Damages

If a bank has approved a loan application but later changes its mind, it should promptly advise the loan applicant; otherwise, the bank may face liability for punitive damages. This was the lesson in Bailey v. Hawthorn Bank before the Missouri Court of Appeals Western District.

In that case, the bank approved a loan and issued a loan commitment. Afterward, the bank decided not to follow through with the proposed loan, but it never informed the loan applicant of that decision. Instead, when the loan applicant pressed the bank to close the loan, the bank made excuses as to why the closing had to be delayed. The jury found the bank liable to the loan applicant for breach of contract and negligent misrepresentation and awarded $310,000 in actual damages and $200,000 in punitive damages.