Mr. Cooper 'pay-to-pay' class action settlement gets first approval

A federal judge gave preliminary approval for a $3.6 million settlement in a class action case against Mr. Cooper over allegedly charging borrowers "exorbitant pay-to-pay fees."

The suit, filed in the U.S. District Court for the District of Columbia, claims that Mr. Cooper imposed unlawful servicing fees when customers were making monthly payments on their mortgages via phone or online. Other mortgage servicers, such as Bank of America and PHH Mortgage, have been accused of similar actions.

This practice, according to the suit, violated a number of state consumer protection laws, including the Federal Fair Debt Collection Practices Act ("FDCPA"). The preliminary decision was first covered by Law360.

The lender declined to provide commentary regarding the preliminary settlement, noting it does not comment on pending litigation. In May 2018, Mr. Cooper purportedly ceased such practices, the suit noted. 

Jackerly McFadden, Celinda Lake, Mary Montgomery, and Lillian Nelson represent the class of borrowers harmed by Mr. Cooper's fee collection practices.

In the suit, plaintiff McFadden claims she made mortgage payments over the phone for which she was charged $19 each. 

"Mr. Cooper acted deceitfully by assessing Ms. McFadden more in pay-to-pay fees than it actually disbursed to process the pay-to-pay transactions," the suit said.

The $3.6 million sum, if approved, will be doled out to three groups: $1.4 million will go to the D.C. members of the class, $2 million will be divvied up to the nationwide class and $179,291 will be used to cover administrative costs and other court-approved attorneys' expenses.

The second part of the settlement includes non-monetary injunctive relief, which is that Mr. Cooper "agrees to refrain from the charging or collection of convenience fees from borrowers for a period of at least six additional months after entry of the final approval order, which constitutes approximately two years of injunctive relief in total," according to court documents.

A final approval hearing will take place on March 8, 2024. 

The preliminary approval comes in the midst of increased public discourse regarding the regulation of junk fees, with the Biden Administration, Consumer Financial Protection Bureau and several state governments all weighing in over the past year. The financial services industry has been a regular target of criticism by the CFPB, being accused of relying on junk fees as a source of revenue. Last year, several state regulators also called for an end of pay-to-pay within mortgage and other loan servicing, a practice the CFPB says falls under the definition of a junk fee.