Illinois Federal Court Rejects Putative Class Challenge To Crediting Of Online Mortgage Payments

CFPB Mortgage Servicing Class Action

On May 27, the U.S. District Court for the Northern District of Illinois held that a mortgage servicer did not violate Regulation Z when it credited a payment two days after the borrower submitted the payment online. Fridman v. NYCB Mortg. Co., LLC, No. 13-3094, 2014 WL 2198395 (N.D. Ill. May 27, 2014). The borrower filed a putative class action against her mortgage servicer, alleging the servicer violated TILA and Regulation Z by failing to promptly credit her online payments. The court explained that the servicer allows borrowers to submit payments online, but requires borrowers to acknowledge that its ACH process takes two business days to post the payment. In this case, the borrower selected the online payment option, and the delayed payment application resulted in a late fee for the borrower. The court rejected the borrower’s argument that the servicer’s online payment screen is the equivalent of a check, and therefore the date of receipt is when the servicer receives the information—either at the online submission or when the ACH file is created through the nightly batch processing. The court determined based on Regulation E staff commentary that the ACH system utilized by the servicer is an electronic fund transfer system, and determined that the payment at issue fits squarely within the definition of “electronic fund transfer” that is considered received under Regulation Z  “when the mortgage servicer receives the third-party payor’s check or other transfer medium, such as an electronic fund transfer.” Therefore, the court held that the servicer was in compliance with Regulation Z when it credited the account after receiving the transfer of funds from the borrower’s deposit account two days after the borrower submitted her payment online. The court granted the servicer’s motion for summary judgment and dismissed the suit.