A class action firm is suing two leading lenders for providing loans to consumers they knew wouldn't be able to repay them.

Roddy, Klein and Ryan, based in Boston, is seeking class action status in its case against Bank of America and Wells Fargo. A decision on the firm's motion for class certification is pending.

Gary Klein, an attorney with Roddy, says the banks "created these toxic products" by pushing loans to homeowners and hiding the details in complicated fine print incomprehensible to the average consumer.

The lawsuit involves loans known as "payment option" mortgages. Under such arrangements, all unpaid interest is tacked onto the homeowner's balance. After a set amount of time, the consumer has to make payments that cover both the interest and the principal. This combination often proves too much for homeowners to handle, as required monthly payments jump to figures well out of their reach.

Indeed, fully 40 percent of payment option loans are now in default, either because homeowners could not afford the payments, or because they abandoned their homes as values--and equity--fell precipitously.

The case is novel and somewhat risky, in that it seeks to hold lenders accountable for their borrowers' inability to pay their mortgages. If it is successful, it could spawn a wave of similar litigation against other banks who pursued irresponsible lending practices. Indeed, Suffolk University law professor Kathleen Engel went so far as to tell the Boston Globe that Klein's suit could "be a model throughout the country."

The suit essentially argues that, while the contracts may have been technically lawful, they were so unconscionable as to be unenforceable. Courts often invalidate contracts that involve a disparity in bargaining power or some other situation in which consumers have been especially taken advantage of.

Roddy based its suit on a decision out of Massachusetts's highest court last year. The Supreme Judicial Court ruled that Fremont Investment & Loan, a California-based bank, was pushing loans to consumers despite knowing the loans were not likely to be repaid. The lender ultimately settled with Massachusetts Attorney General Martha Coakley for $10 million. The money was used to help borrowers repay the toxic loans. Engel said the decision "should put lenders on edge."

Wells Fargo is on edge with or without the latest suit. Earlier this week, Illinois Attorney General Lisa Madigan announced that she is suing the lender for targeting African-American and Latino homeowners in peddling its high-cost subprime loans. Madigan says that white borrowers received better terms on their loans while minorities were left out in the cold. Madigan's suit further alleges that deceptive marketing led many consumers to think they were doing business with Wells Fargo's prime lending division, when in fact they were dealing with the company's subprime section.

Both lenders were tight-lipped about the Roddy suit, with Wells Fargo offering no comment. Bank of America would only say that the suit is without merit.