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Seventh Circuit Defines When Servicers Must Credit Online Mortgage Payments Under TILA
Seventh Circuit Defines When Servicers Must Credit Online Mortgage Payments Under TILA

The Seventh Circuit Court of Appeals has ruled that the Truth in Lending Act (“TILA”) requires that mortgage servicers must credit consumer accounts with online mortgage payments on the date the consumer authorizes payment, not the date when the servicer receives the funds from the consumer’s bank.

In Fridman v. NYCB Mortgage Co., LLC, No. 14-2220 (7th Cir. Mar. 11, 2015), a putative class action case, the borrower alleged violations of TILA where mortgage servicers penalized consumers for late payments where the servicers’ own payment processing systems caused the underlying delay.

Elena Fridman, the putative class representative, submitted a mortgage payment online on her mortgage servicer’s website, authorizing her servicer — NYCB Mortgage Co., LLC — to collect funds from her bank account. Her payment was timely according to her Note; however, NYCB did not credit the payment for two business days. This delay caused Fridman to incur a late fee. She brought suit in district court on behalf of herself and a putative class alleging violations of TILA. The district court granted summary judgment for NYCB; Fridman then appealed to the Seventh Circuit, which reversed the district court’s order and remanded for further proceedings.

According to TILA and Regulation Z, mortgage servicers must credit payments to consumer accounts “as of the date of receipt” of payment, unless delayed crediting would have no effect on late fees or credit reporting.

NYCB argued that since it did not receive funds on the date of authorization, the customer’s account should not be credited. The Seventh Circuit rejected this argument, saying that when payment is rendered via a paper check, the account is credited on the date the check is received, not when the actual funds are collected.

Relying on the Consumer Financial Protection Bureau’s (“CFPB”) official interpretations of Regulation Z, the court found that “date of receipt” means ““the date that the payment instrument or other means of payment reaches the mortgage servicer,” finding that online authorizations are an “other means of payment.”

The court also relied on the intent of TILA to protect consumers against unwarranted delays by mortgage servicers, noting that servicers control how quickly to collect payments and if the “date of receipt” was interpreted as the date the servicer receives the funds, “the servicer could decide to collect payment through a slower method in order to rack up late fees.”

PIB Law represents national banks, retailers, reinsurers, insurers, mortgage lenders and financial services companies from its offices in New Jersey, New York City, California, Boston, Chicago, San Antonio and Philadelphia. For more information, contact PIB Law at 908-725-9700.

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