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From Banking and Finance Law Daily, May 28, 2014

Mortgage payment recorded two days after on-line initiation was credited on date of receipt

By Richard A. Roth, J.D.

A mortgage loan servicer that did not credit a consumer’s payment initiated on the servicer’s website until several days later, when the funds were transferred from the consumer’s bank, credited the payment of the day of receipt as required by the Truth in Lending Act and Reg. Z—Truth in Lending (12 CFR Part 1026). According to a U.S. District Judge for the Northern District of Illinois, the payment method was an electronic transfer, rather than the equivalent of a check, which determined what the “date of receipt” would be (Fridman v. NYCB Mortgage Company, LLC, May 27, 2014, Ellis, U.S. District Judge).

The consumer’s mortgage included routine terms making payments due on the first of each month, with a 15-day grace period, the judge said. If a consumer chose to make a payment using the servicer’s website, the site made clear that there would be a two-day delay between the initiation of the payment and the posting of that payment.

The consumer, in an apparent effort to avoid a late fee, initiated her December 2012 payment using the servicer’s website on either the evening of Thursday, December 12, or the early morning of Friday, December 13. According to the judge, the servicer’s website would have made clear that the payment would be posted on December 18, after the 15-day grace period expired.

The servicer indeed did impose a late fee, and the consumer subsequently sued, asserting that the servicer had not credited her payment on the date of receipt.

Prompt crediting. TILA requires mortgage loan servicers to credit payments “as of the date of receipt” (15 U.S.C. §1639(f)). Reg. Z includes a comparable requirement (12 CFR 1026.36(c)). The question for the judge to decide was what the date of receipt would be when a consumer used the servicer’s website to initiate a process by which her bank sent her mortgage payment to the servicer.

To answer that question, the judge turned to Reg. Z’s staff comments. The comment to 12 CFR 1026.36(c) says that the date of receipt is the date the “payment instrument or other means of payment reaches the mortgage servicer.” It also gives two examples:

  • payment by check is received when the servicer receives the check, not when the funds are collected;

  • payment by a third-party payor, such as a consumer’s bank, is received when the servicer receives the transfer medium, which explicitly includes an electronic transfer.

The consumer asserted that completing the form on the servicer’s website was the equivalent of giving the servicer a check, making the form completion date the date of receipt. The servicer, on the other hand, maintained that completing the form commenced the process of payment by a third party, making the electronic transfer date the date of receipt.

Servicer’s payment process. The process used by the servicer’s website to complete a mortgage payment made clear that an electronic fund transfer was being carried out, the judge decided. Completing the on-line payment form was not the equivalent of delivering a check to the servicer.

According to the judge, mortgage payments from third-party banks to the servicer were processed by Electronic Payment Network, an automated clearing house. A consumer would begin the process by completing the form on the servicer’s website, including selecting a payment date at least two days later. Each evening, the servicer would process all of the payment forms it had received, creating ACH files.

The next business day, all of the ACH files would be transmitted to EPN, which would forward them to the consumers’ various banks. The banks then would debit the consumers’ accounts on the transaction settlement date specified by EPN, and the servicer would be credited with the funds for all of the payments with that settlement date. However, the servicer credited the payment to the consumer’s mortgage loan account on the payment date selected by the consumer, the judge noted.

The staff comments for the relevant section of Reg. E—Electronic Fund Transfers (12 CFR 1005.3) established that this ACH process resulted in an electronic fund transfer, the judge said. As a result, the date of the servicer’s receipt of the funds was the date they were transferred, not the date the on-line payment form was completed. There was no support for the consumer’s contention that the on-line form was equivalent to a check, especially given that the Reg. Z staff comments explicitly distinguished between electronic fund transfers and checks.

The case is No. 13 C 03094.

Attorneys: Catherine Anne Ceko (Edelman, Combs, Latturner & Goodwin LLC) for Elena Fridman. LeAnn Pedersen Pope (Burke, Warren, MacKay & Serritella, PC) for NYCB Mortgage Co., LLC.

Companies: Electronic Payment Network; NYCB Mortgage Company, LLC

MainStory: TopStory ConsumerCredit IllinoisNews Loans Mortgages TruthInLending

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