Federal court rules against servicers in pay-to-pay lawsuit

A federal district court in Houston ruled in favor of a class-action plaintiff last week in a three-year-old case involving pay-to-pay fees, approving a summary judgment against two mortgage servicers.

The case, originally filed in 2020, claimed Lakeview Loan Servicing and its subservicer LoanCare had unlawfully charged fees of up to $12 per month to borrowers of Federal Housing Administration-sponsored loans who paid their bills by phone. The collection of what some call junk fees amounted to violations of the Texas Debt Collection Act, according to the law firm Bailey & Glasser, who represented plaintiff for the class Ursula Williams. 

A summary judgment in August denied the defendants' claims, including Lakeview's assertions it was not directly involved in pay-to-pay collection due to its subservicing agreement with LoanCare. The judge's recommendation in the August filing said, "The TDCA applies to anyone who 'directly or indirectly engages in debt collection.'"

After reviewing the August summary findings following objections by the defendants, a different judge adopted them last week, approving in favor of Williams.

"This case is a big win for American consumers who struggle enough without being nickel-and-dimed by illegal junk fees," said lead counsel James Kauffman in a press release. Kauffman also labeled such charges "unlawful."

In his written opinion, Judge Charles Eskridge cited flaws in Lakeview's and LoanCare's objections to the August decision, indicating they "largely reiterated their original arguments." He also said he had examined their objections and found "that they lack merit" for reasons stated in the previous ruling.

Defendants had also argued that their refund of pay-to-pay fees to Williams, and their voluntary discontinuation of such charges during COVID-19, rendered the original case moot and eliminated the need to determine legality, claims the judges also denied. 

The decision by the courts "will allow the plaintiffs to obtain a permanent injunction that will prevent the companies from ever collecting these fees again in Texas," according to Bailey & Glasser. 

Representatives for Lakeview Loan Servicing and LoanCare were not available for comment.

This latest decision comes after the Consumer Financial Protection Bureau and the Biden administration have both come out publicly over the past 12 months against added consumer fees. 

In a similar class-action case lodged this summer, a West Virginia homeowner is suing Bank of America for collection of fees incurred when she made payments by phone. Bailey & Glasser is also representing the plaintiff in this case, claiming the practice violates the state's consumer credit and protection act.