Mortgage servicers cannot charge fees on online payments
On January 19, 2022, the Court of Appeals for the Fourth Circuit (Court) ruled that mortgage servicers were debt collectors under the Maryland Consumer Debt Collection Act (MCDCA) and that a fee $5 convenience charge charged to borrowers who paid monthly mortgage bills online or over the phone had been breached. the MCDCA. In doing so, the Fourth Circuit reversed a decision of the United States District Court for the District of Maryland (District Court). Alexander v. Carrington Mortgage Services, LLC— F.4th —, 2022 WL 164018 (4and Cir. January 19, 2022).
Carrington Mortgage Services, LLC serviced mortgages for Ashly Alexander and Cedric Bishop. In addition to allowing payments to be made to an address listed in the promissory notes, Carrington allowed Ms. Alexander and Mr. Bishop to pay online or over the phone if they paid a $5 convenience fee. Ms. Alexander and Mr. Bishop each did so on multiple occasions in 2018 and 2019. Ms. Alexander filed a class action lawsuit against Carrington in Maryland state court over the practice. Carrington returned the case to federal court and Mr. Bishop was added as a plaintiff.
The district court dismissed the case on Carrington’s motion. The district court ruled 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 was entitled to collect the convenience fee because the mortgage documents did not prohibit it and the plaintiffs voluntarily chose to make the payments in a manner that triggered the convenience fee. .
On appeal, the Court made a different reading of the applicable laws. The Court ruled that Carrington was a “collector” under the MCDCA because he was collecting debts arising from consumer transactions. The Court refused to offer an exemption to mortgage managers despite three arguments made by Carrington.
Carrington first argued that there is a difference between debt collection and the passive function of mortgage administrator, but the Court said that the law does not include such a distinction and that the Court does not would therefore not add any.
Next, Carrington asserted that plaintiffs should challenge the “method of collection” rather than the fees themselves, but the Court found that a recent case from the Maryland Court of Appeals rejected that position. Chavis v. Blibbaum & Assocs., PA— Md. —, 2021 WL 3828655, at *11 (August 27, 2021).
Additionally, Carrington argued that while he could be a “collection agent” under the MCDCA, he was not a “collection agent” as defined in the FDCPA, because that definition requires the loan in question to 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 allows specifically state laws with broader consumer rights to be available to consumers.
Carrington noted that the FDCPA prohibits “[t]the recovery of any sum … unless such sum is expressly authorized by the agreement creating the debt or permitted by law. Carrington agreed that the loan documents do not contain a provision expressly authorizing convenience charges, so the case boiled down to whether convenience charges were “permitted by law.” There is no law that specifically allows convenience fees, nor any law that specifically prohibits them. Carrington alleged that in the absence of a separate supervisory law, under the FDCPA convenience fees are “permitted by law.” However, the Court agreed with the plaintiffs’ interpretation that for something to be “authorized by law” there must be an express sanction or endorsement thereof.
Next, Carrington pointed out that it provided an additional service to consumers by allowing them to make payments in a manner other than that required by the loan documents, and that consumers who pay the convenience fee do so for the convenience of online payment and in order to obtain immediate satisfaction that their payments are received and applied to their loan accounts. Carrington argued there was no reason for him to do so for free.
Rejecting Carrington’s argument, the Court concluded that it costs creditors less to receive and process checks than to receive and process payments online. The Court pointed out that it did not prohibit mortgage servicers from accepting payments online, but it did prohibit the imposition of convenience fees.
The plaintiffs had also alleged that Carrington engaged in “unfair, abusive or deceptive marketing practices” that violated Maryland consumer protection law. The district court denied that request, as did the court.
Senate Bill 217, introduced in the Maryland General Assembly in January 2022, would require consumer borrowers to have alternative free payment methods, including electronic funds transfers. Senate Bill 217 would also authorize a lender to charge fees for using other payment methods if the method is authorized by the loan documents or disclosed and accepted by the borrower, and if the fees relate at the cost to the lender of that method of payment. .