WASHINGTON, DC – In an important step forward for consumers, on July 27, 2021, U.S. District Magistrate Zia M. Faruqui denied a motion to dismiss from Nationstar Mortgage LLC, d/b/a Mr. Cooper (“Mr. Cooper”) in Jackerly McFadden, et al. v. Nationstar Mortgage LLC d/b/a Mr. Cooper. Moreover, the United States District Court for the District of Columbia concurred with other courts across the country that the fees mortgage loan servicers charge their clients in order to make mortgage payments (“pay-to-pay” fees) are improper and illegal.
The class action lawsuit was brought by Plaintiffs with mortgages acquired by Mr. Cooper, to challenge the servicer’s practice of charging pay-to-pay fees when borrowers make mortgage payments via telephone. The Plaintiffs allege that Mr. Cooper violated the Federal Fair Debt Collection Practices Act (“FDCPA”), the Florida Consumer Collection Practices Act (“FCCPA”), the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”), the District of Columbia Mortgage Broker Lender Act (“MBLA”), and the District of Columbia Consumer Protection Procedures Act (“DCCPPA”), as well as common law claims for Breach of Contract and Unjust Enrichment.
Plaintiffs allege that every time borrowers paid their mortgages via phone, Mr. Cooper charged them a $14 fee for using the “Interactive Voice Response” system or $19 for speaking with a representative. Mortgage borrowers also incurred an additional $0.50 payment processing fee. Allegations against Mr. Cooper include that the mortgage servicer “charged fees under the guise that such payments were third-party processing costs, but in fact over 90% was kept . . . as profit.”
Mr. Cooper sought to dismiss these claims, but the Court denied the motion in full, finding that these fees violate the debt collection statutes’ prohibitions on assessing fees that are “‘incidental’ to the debt being paid.” Additionally, the Court noted that these pay-to-pay fees were neither expressly mentioned or authorized in the parties’ loan documents and are therefore prohibited by applicable law, including regulations issued by the Federal Housing Authority. Plaintiffs further alleged that Cooper’s retention of the pay-to-pay fee is an “unfair and deceptive” practice in violation of the FDUTPA and DCCPPA. While Mr. Cooper’s arguments mainly centered around Plaintiffs’ knowledge of the fees, the district court correctly noted that Plaintiffs “are not arguing that they were unaware that they were paying a fee” and rested its decision on the per se illegality of pay-to-pay fees and Mr. Cooper’s related profits.
In response to the decision, Kristen Simplicio, a partner at Tycko & Zavareei LLP and counsel for the Plaintiffs stated, “We are pleased that the court made clear that mortgage loan servicers are in fact subject to the DC Consumer Protection Procedures Act. In addition, the court’s correct application of federal and state debt collection statutes to the fees at issue here will pave the way for class certification and relief to mortgage borrowers around the country.”
The case is Jackerly McFadden, et al. v. Nationstar Mortgage LLC d/b/a Mr. Cooper, Case No. 20-cv-166-EGS-ZMF. The plaintiffs are represented by Tycko & Zavareei LLP and Bailey Glasser LLP.
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