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Financial Services Law Insights and Observations

State AGs oppose proposed settlement in FDCPA processing fees class action

Courts State Issues State Attorney General Mortgages Mortgage Servicing FDCPA Class Action

Courts

On January 29, a coalition of state attorneys general from 32 states and the District of Columbia, led by the New York AG, filed an amicus brief in the U.S. District Court for the Southern District of Florida opposing a proposed settlement in a class-action FDCPA suit against a mortgage servicer that allegedly charged “processing fees” or “convenience fees” for mortgage payments made over the phone or online. The plaintiffs filed the lawsuit last March claiming the defendant did not charge processing fees if borrowers made payments by check or signed up for automatic monthly debits from their bank accounts. They further argued that the processing fees were “illegal and improper because neither the mortgages themselves nor applicable statutes authorize such fees.” The parties agreed to mediation in April, and a motion for preliminary approval of a settlement was filed in August.

In their brief, the AGs outlined concerns with the proposed settlement, including that (i) the relief provided to class members violates various state laws, and that the defendant seeks to ratify fees in an “unwritten, mass amendment” that violates state laws and regulations; (ii) the class members only receive an “inadequate” one-time payment, while the defendant may continue to charge excessive fees for the life of the loan; and (iii) low- and moderate-income borrowers are not treated equitably under the proposed settlement. Additionally, the AGs emphasized concerns “about the speed with which this case was settled,” arguing that entering into the proposed settlement quickly during the Covid-19 pandemic has deprived the court and the AGs “of the ability to determine the adequacy, fairness and reasonableness of the settlement.”