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Financial Services Law Insights and Observations

Missouri Federal Court Certifies Borrower Class in YSP Disclosure Case

State Issues

On February 22, the U.S. District Court for the Eastern District of Missouri certified a class representing borrowers in Missouri who received allegedly inadequate disclosures from their mortgage broker. Glen v. Fairway Independent Mortg. Corp., Case No. 4:08CV730, 2010 WL 623675 (E.D. Mo. Feb. 22, 2010). In this case, the plaintiffs alleged that a mortgage broker failed to fulfill a promise to disclose to borrowers all compensation it received from mortgage lenders, in violation of the Missouri Merchandising Practices Act (MMPA). Specifically, the plaintiffs alleged that the broker failed to disclose a yield spread premium (YSP) in its good faith estimates. The court certified the class over the defendant broker’s objections relating to typicality of claims and the predominance of common questions of law and fact. The court agreed with the plaintiffs that the predominant and common issue in the case was whether the broker’s practice of failing to disclose YSPs it received from lenders, after promising to borrowers to make such disclosures, violated the MMPA. The court, however, declined to accept the plaintiffs’ request to extend the relevant time period from five to six years under Missouri’s statute of limitations. In certifying the class, the court noted that whether the broker’s disclosures were consistent with requirements under the Real Estate Settlement Procedures Act (RESPA) was “irrelevant to the question before the Court, which is whether plaintiffs can bring claims under Missouri law.” As such, the court also rejected the broker’s claim that whether its promises to consumers were false required an inquiry into whether the YSP constitutes “reasonable compensation for the goods,” noting that “the ‘reasonableness’ inquiry is only relevant to a determination of whether [the broker] violated RESPA,” which was not at issue in this case.

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