Homeowners could face illegal fees and amended loans under court settlement, states say
Nearly one million homeowners, including thousands in Florida, would be subject to potentially illegal service charges and mortgage modifications under a proposed court settlement, say 33 state attorneys general.
Florida Attorney General Ashley Moody joined his counterparts in 32 states to oppose the proposed settlement with PHH Mortgage Corp. of West Palm Beach, formerly known as Ocwen Loan Servicing. The settlement would resolve a class action lawsuit that challenged the legality of “convenience fees” for mortgage payments made through the company’s website or telephone payment system.
But lawyers who negotiated the proposed settlement stressed that most of the same attorneys general were not opposed to the 2018 settlement of a different class action lawsuit against the same company that allowed the fees to continue.
The pending lawsuit claimed the company had violated the Fair Debt Collection Practices Act since March 2016 by charging fees for online and telephone payments by consumers whose mortgage contracts did not expressly allow the fees.
The ability to make payments over the phone or through a website can prevent consumers from incurring late fees or having their accounts go unpaid. Many companies have long billed for this capability, knowing that consumers will choose to pay the fees rather than incur higher late fees. But critics see these charges, especially if they exceed the cost of providing the service by a business, as an exploitation of financially disadvantaged consumers.
In a brief filed in the case on Jan. 29, the 33 attorneys general said a proposed settlement negotiated between PHH and lawyers representing the plaintiffs would allow the company to continue charging the “likely illegal” fees. The settlement would also allow the company to amend the mortgage contracts of all of its borrowers – without the borrowers’ consent and without recording the amended contracts in official records.
Even borrowers who are not part of the lawsuit are said to be bound by the unsaved loan modifications, according to the filing.
Allow PHH Mortgage Corp. to create an “unwritten mass amendment” to its customers’ loan terms so that it can continue to charge “exorbitant fees” for online and telephone payments would be a boon to the company, the brief said.
“PHH’s sole purpose is to collect and process payments from homeowners, which already earns it millions of dollars each year,” New York State Attorney Letitia James said in a statement. “In the 21st century, when most Americans pay their bills online or over the phone, charging fees on top of what they’re already paid is not only unethical, it’s illegal.”
The settlement would effectively allow PHH to increase the fee to $ 19.50 per payment for the remaining term of the loan, according to a press release from James’ office.
PHH, a subsidiary of Ocwen Financial Corp., has been charging fees ranging from $ 7.50 to $ 17.50 per month for years for customers who pay over the phone or online, without charging a fee to customers who send a check or agree to have their bank account debited. automatically every month, according to the release.
As part of the settlement, PHH agreed to reimburse customers for 18% to 28% of the convenience fees paid since March 2016. Existing customers would get their repayments as a credit on their loan balances, less late fees. ‘they must.
Lawyers for three law firms that negotiated the proposed settlement filed a joint statement on February 16, calling much of the attorneys general’s argument “baseless.”
The joint statement was signed by Adam Moskowitz of Moskowitz Law Firm LLC in Coral Gables, Josh Migdal of Mark Migdal & Hayden in Miami, and Timothy Andreu and Michael Pennington of Bradley Arant Boult Cummings LLP in Tampa.
He notes that 32 of the 33 opposing attorneys general signed a consent agreement settling a separate action with PHH in 2018 that allows the disputed fees.
The consent agreement required the company to pay $ 45 million and established “service standards” that allowed PHH to charge, unless prohibited by state law, “disclosed and agreed upon convenience fees” for so long. that borrowers have other payment options that don’t require a fee, the lawyers said.
By claiming that continuing to collect convenience fees would be “likely illegal,” the attorneys general ignore the dismissals of at least eight other recent cases challenging the legality of convenience fees charged by other lending services, according to the communicated.
Trial courts are divided on whether mortgage loan documents should expressly authorize “borrowers to be able to purchase additional expedited payment services in exchange for fully disclosed fees,” while appellate courts do not. have not weighed at all, the lawyers said.
Regarding the legality of unregistered loan modifications, lawyers pointed out that courts in other class action settlements have made orders amending loan documents – even for consumers who are not plaintiffs in the lawsuits. – “by application of the law”.
The proposed settlement is “fair, reasonable and adequate,” the lawyers wrote, especially in light of the risk that their plaintiffs will lose their case.
Ocwen / PHH has for years been a frequent target of accusations, litigation and enforcement actions.
In 2020, Moody’s office announced that the state had settled a lawsuit brought by the Federal Bureau of Consumer Financial Protection accusing Ocwen of widespread misconduct, including failing to properly credit borrowers with on-time payments. , resulting in inaccurately reported defaults, late fees and negative credit reports. . Ocwen agreed to pay $ 11 million but did not admit any wrongdoing. This lawsuit did not involve any convenience costs.
In 2013, Ocwen agreed to spend $ 2 billion to resolve allegations by Florida and 47 other states that the company used false and misleading documents and affidavits, including signing foreclosure documents without reviewing them, known as robo-signature, following the economic crash of 2008.