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From Antitrust Law Daily, September 23, 2015

Homeowners failed to show that required escrow account was illegal tying arrangement

By Linda O’Brien, J.D., LL.M.

Two homeowners failed to sufficiently plead that their mortgage lender conditioned an extension of credit to them on their agreement to obtain an additional service — the establishment of an escrow account for the payment of real estate taxes, the U.S. Court of Appeals in Atlanta has ruled. Thus, the district court’s dismissal of the complaint was affirmed (Akiki v. Bank of America, N.A., September 22, 2015, Carnes, J.).

In February 2008, Raymond and Judith Akiki obtained a “no documentation” loan and equity line of credit from Bank of America (BofA) that was secured by a mortgage on their home. In March 2014, the Akikis filed suit against BofA, alleging violations of the Bank Holding Company Act. Specifically, the plaintiffs claimed that the lender misapplied timely payments, improperly required the creation of an escrow account in 2012, and charged them a higher interest rate than the rate provided in the loan documents. In July 2014, the district court granted BofA’s motion to dismiss, finding the plaintiffs failed to sufficiently allege that the escrow account was anticompetitive or tied to the granting of a loan upon its creation. The plaintiffs appealed.

The appellate court determined that the plaintiffs failed to state a claim for an illegal tying arrangement in violation of the Bank Holding Company Act. In 1970, the Bank Holding Company Act was amended to prohibit anticompetitive tying arrangements. A litigant who seeks to assert a claim for violation of the antitying amendment to the Act must allege that the “condition placed on the loan is (1) an unusual banking practice; (2) an anticompetitive tying arrangement; and (3) a practice that benefits the bank,” the court explained.

The homeowners contended that BofA forced them into an illegal tying arrangement when it required the creation of an escrow account for the payment of real estate taxes, even though the plaintiffs had previously paid those taxes and were not otherwise in default on their loan obligation. However, the plaintiffs made no allegation that BofA conditioned the grant of a loan to them in 2008 on the creation of an escrow account in 2012, according to the appellate court. An illegal tying arrangement is created when a bank refuses to extend credit to a borrower unless the borrower also agrees to purchase a separate, unrelated bank service. No such arrangement existed here, the court found. The homeowners obtained their loan long before the defendant required the undesired escrow account.

Not only did the plaintiffs fail to allege that the creation of an escrow account for the payment of real estate taxes was an unusual banking practice, they conceded that it was “typical” and “standard” in the industry, appeared in their own loan documents, and fell within an exception to the antitying amendment to the Bank Holding Company Act. Therefore, the district court correctly dismissed the plaintiffs’ claim.

The case is No. 14-15297.

Attorneys: Henry N. Portner (Law Office of Henry Portner) for Raymond Akiki. Tricia Julie Duthiers (Liebler Gonzalez & Portuondo, PA) for Bank Of America, N.A. Bank Of America Corp., and Greentree Servicing LLC.

Companies: Bank of America, N.A.; Bank of America Corp.; Greentree Servicing LLC

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