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Mortgage Loan Servicers Cannot Charge Fees for Online Payments

On January 19, 2022, the Fourth Circuit Court of Appeals (Court) held that mortgage servicers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA), and $5 convenience fees charged to borrowers who paid monthly mortgage bills online or by phone violated the MCDCA. In so doing, the Fourth Circuit reversed a decision of the U.S. District Court for the District of Maryland (District Court). Alexander v. Carrington Mortgage Services, LLC, --- F.4th ---, 2022 WL 164018 (4th Cir. Jan. 19, 2022).

Carrington Mortgage Services, LLC serviced the mortgage loans of Ashly Alexander and Cedric Bishop. In addition to permitting payments to be made to an address set forth in the promissory notes, Carrington permitted Ms. Alexander and Mr. Bishop the option of paying online or by phone if they paid a $5 convenience fee. Ms. Alexander and Mr. Bishop each did so numerous times during 2018 and 2019. Ms. Alexander filed a class action suit against Carrington in Maryland state court because of this practice. Carrington removed the case to federal court, and Mr. Bishop was added as a plaintiff.

The District Court dismissed the case upon Carrington’s motion. The District Court held that Carrington was not a “collector” under the MCDCA and was not a “debt collector” under the federal Fair Debt Collection Practices Act (FDCPA). The District Court further found that Carrington had the right to collect the convenience fees, because the mortgage documents did not prohibit them and the plaintiffs voluntarily chose to make the payments in a manner that triggered the convenience fees.

On appeal, the Court took a different reading of the applicable statutes. The Court held that Carrington was a “collector” under the MCDCA because it was collecting debts arising under consumer transactions. The Court refused to offer an exemption to mortgage servicers despite three arguments that Carrington made.

Carrington first argued that there is a difference between debt collecting and passively serving as a mortgage loan servicer, but the Court stated that the statute includes no such distinction and so the Court would not add one.

Then, Carrington asserted that plaintiffs must challenge the “method of collection” rather than the fees themselves, but the Court found that a recent Maryland Court of Appeals case rejected this position. Chavis v. Blibaum & Assocs., P.A., --- Md. ---, 2021 WL 3828655, at *11 (Aug. 27, 2021).

Additionally, Carrington argued that while it might be a “collector” under the MCDCA, it is not a “debt collector” as defined in the FDCPA because that definition requires that the subject loan be in default. However, the Court ruled that the broader definition under the MCDCA reflected the intent of the Maryland legislature to give consumers more rights than they have under federal law and that the FDCPA specifically permits state laws with broader rights for consumers to be available to consumers.

Carrington noted that the FDCPA prohibits “[t]he collection of any amount ... unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Carrington agreed that the loan documents do not contain a provision that expressly authorizes the convenience fees, so the case boiled down to whether the convenience fees were “permitted by law.” There is no law that specifically permits convenience fees, nor is there a law that specifically bans them. Carrington alleged that in the absence of a separate controlling statute, under the FDCPA, convenience fees are “permitted by law.” However, the Court sided with the plaintiffs’ interpretation that for something to be “permitted by law,” there must be an express sanction or approval of it.

Next, Carrington pointed out that it offered an additional service to consumers by allowing them to make payments in a way other than required under the loan documents, and the consumers who pay the convenience fee do so for the convenience of paying online and in order to obtain the immediate satisfaction that their payments are received and applied to their loan accounts. Carrington argued that there is no reason that it should do this for free.

In rejecting Carrington’s argument, the Court found that it costs less for creditors to receive and process checks than for them to receive and process online payments. The Court pointed out that it was not prohibiting mortgage loan servicers from accepting online payments, but it was banning the imposition of convenience fees.

The plaintiffs had also alleged that Carrington committed “unfair, abusive, or deceptive trade practices” that violated the Maryland Consumer Protection Act. The District Court had dismissed this claim, and so did the Court.

Pending Legislation: Senate Bill 217 (SB 217), introduced in the Maryland General Assembly in January 2022, would require that consumer borrowers be provided with alternative methods of making payments free of charge, including electronic funds transfers. SB 217 would also authorize a lender to impose a fee for using other payment methods if the method is authorized by the loan documents or disclosed and agreed to by the borrower, and if the fee relates to the cost to the lender of that payment method.

For more information, contact Edward J. Levin.

 

Ed Levin
410-576-1900 • elevin@gfrlaw.com

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Date

01.24.22

Type

Publications

Authors

Levin, Edward J.

Teams

Real Estate