ARM customers of the bank ``may be unaware of the adjustment errors . . . or have sustained damages in such amount that, when taken individually, are too small to justify the expense and effort required to sue separately. Nevertheless, the damages of the class are substantial and justify the taking of legal action.''

The suit details the mortgage contracts of each of the three customers, and charges that over a period of as long as six years, the bank's rate adjustments on the borrowers' notes were ``in excess of that allowed'' under the terms of the mortgages.

A spokesman for Workingmens said the bank denies the charges in the complaint and said the lender ``will vigorously oppose'' the class action in court.

The potential significance of the federal suits in Indiana extends well beyond that state. The accuracy of ARM adjustments has become a federal issue, and has caught the eye of bank regulators and Capitol Hill politicians.

The Office of the Comptroller of the Currency recently asked bank examiners to conduct studies of local banks' procedures for adjusting rates as part of upcoming rounds of truth-in-lending compliance reviews.

The comptroller's attention was prompted by charges leveled by a former Federal Savings & Loan Insurance Corporation (FSLIC) employee, who said 50 percent of the 7,000 ARMs made by S&Ls that he examined in the Midwest carried erroneous rate adjustments.

John Geddes, now a consultant to the Indiana lawyers, among others, estimated that national ARM overcharges could amount to a $65 billion liability for the federal government, if not corrected.

Geddes' estimates are disputed by lending-industry officials.

Could your own adjustable-rate loan include overcharges? George Plews puts the odds at 50-50.

``It's not necessarily the case that your lender is deliberately figuring your rate adjustments incorrectly,'' he said. ``It's often just poor administration, poor computer programming.''

Britton-Simmons advised ARM holders to check their rate every time it is adjusted. If the lender does not already mail information explaining how the adjustment was made, the borrower should request that information and double-check the calculation, he said.

Plews' colleague, Henry Price, says a key problem is that too many consumers don't believe their bank could do such a thing as overcharge them on their mortgage. ``People have nearly as much faith in their mortgage lender as they do in their family doctor,'' Price said. ``That's a mistake.''

Times staff reporter Michele Matassa-Flores contributed to this story.

Copyright 1990, Washington Post Writers Group

Kenneth Harney's column appears Sundays in the Home/Real Estate section of The Times.