Ashly Alexander, et al. v. Carrington Mortgage Services, LLC, No. 20-2359 in the U.S. Court of Appeals for the Fourth Circuit
On January 19, 2022, the Fourth Circuit held that a class action lawsuit against Carrington Mortgage Services, LLC could go forward, overturning a lower court decision that dismissed the borrowers’ claims.
The lawsuit was brought by plaintiffs with mortgage loans acquired by Carrington. These borrowers alleged that Carrington violated debt collection and consumer protection statutes by charging them fees to make their mortgage payments online or by phone (“pay-to-pay fees”), even though their mortgage agreements did not provide for such fees.
In an opinion written by Judge J. Harvie Wilkinson, the unanimous three-judge panel ruled that the borrowers had sufficiently alleged that Carrington violated the Maryland Consumer Debt Collection Act’s prohibition of “any conduct that violates §§ 804 through 812 of the federal Fair Debt Collection Practices Act.” At issue here was that statute’s prohibition on “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”
The Court next ruled that Carrington’s fees qualified as an “amount” that could only be charged if it was expressly “authorized by the agreement creating the debt or permitted by law.” In so doing, it rejected Carrington’s argument that the fees were permitted by law because borrowers agreed to terms and conditions when they made their payments online or by phone. As the Court explained, the requirement that any amounts charged be expressly authorized by the agreement creating the debt “protects consumers from later add-ons in the way of various fees, preventing them from being blindsided down the road.” The Court noted that debt collectors should not be able to modify the terms of the contract, because “consumers have no say in choosing their debt collectors, and they may well be over a barrel at that later point in time.”
Finally, addressing Carrington’s argument that the fees benefit consumers who would have to pay their mortgage by mailing in checks in the absence of these services, the Court pointed out the “inconvenient truth” that an industry publication had found that the cost to debt collectors of accepting checks by mail was between $1 to $4, whereas online and phone transactions often cost just 50 cents.
In response to the decision, Hassan A. Zavareei, a partner at Tycko & Zavareei LLP, and the attorney who argued before the Court on behalf of Plaintiffs-Appellants stated, “While most trial courts across the country have held that mortgage servicers may not charge their customers fees when they pay their mortgages online or by phone, this the first appellate court decision to address the issue. The Fourth Circuit’s unanimous opinion, written by the inestimable Judge Harvie Wilkinson, III, decisively puts to rest many of the specious arguments these loan servicers have been making in defense of this predatory practice.”
Judges J. Harvie Wilkinson III, Robert B. King, and Albert Diaz sat on the panel for the Fourth Circuit.
The case is Ashly Alexander, et al. v. Carrington Mortgage Services, LLC, Case No. 20-2359 in the U.S. Court of Appeals for the Fourth Circuit. The Plaintiffs-Appellants are represented by Tycko & Zavareei LLP, Consumer Law Center LLC, and Bailey Glasser LLP.
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