Lender Motion for Summary Judgment as to Class Action Claims Alleging Lender Violated TILA and HOEPA Properly Granted because Disclosed Finance Charges Fell within TILA’s Tolerance for Accuracy and because HOEPA did not Apply as Transaction was not High-Cost Loan Alabama Federal Court Holds
Plaintiff filed a class action against Accredited Home Lenders, dba Home Funds Direct, alleging violations of the federal Truth in Lending Act (TILA) and Home Ownership and Equity Protection Act (HOEPA), which requires additional disclosures be made in connection with “high cost” loans; the class action complaint asserted that her lender “improperly understated the finance charge on credit it extended to her” and “failed t comply with the additional disclosure requirements” of HOEPA. Frazier v. Accredited Home Lenders, Inc., 607 F.Supp.2d 1254, 2009 WL 931167, *1 (M.D.Ala. 2009). According to the allegations underlying the class action, the lender improperly excluded several charges from its calculation of the finance charge – a claim the lender denied. Id., at *2. The class action sought rescission and damages, id., at *1. Defense attorneys moved summary judgment, id.; the lender argued that its disclosures were “accurate, complete, and in compliance with both TILA and HOEPA.” Id., at *2. The class action complaint alleged that the lender charged an “endorsement fee” for a service that was never provided, and that it charged an excessive fee for “a title search, a title examination, recording, and title insurance,” each of which allegedly should have been included in the finance charge. Id. Defense attorneys countered that the fees in question were “imposed by a third party” and that they were not excessive; further, the lender argued that the finance charge disclosed “falls within TILA’s tolerance for accuracy” (that is, one half of one percent of the loan amount). Id. Alternatively, defense attorneys argued that any errors fell within the safe harbor provision of TILA and fell outside the scope of HOEPA. Id. The district court granted the motion and entered judgment in favor of the lender on the class action complaint.
The federal court observed that the “dispositive question” was “how to calculate properly the finance charge” for the loan extended to plaintiff. Frazier, at *2. The court observed that this task was complicated by “the imprecise language of TILA itself and the maze of federal regulations interpreting the statute.” Id. Turning to the merits, the district court rejected the lender’s claim that it was not responsible for charges imposed by third parties, observing that the relevant inquiry is whether it required the services in question. Id., at *3. But the court agreed with defense attorneys that the lender did not “require” the “endorsement fee” charged by the third party, particularly as no service was ever provided in connection with that third party charge, id. Accordingly, the federal court held that “the endorsement fee must be excluded from the finance charge.” Id. The question then, was whether the remaining fees were “excessive” and whether the lender understated that amount of the finance charge, id.
In determining whether the finance charge was understated, the lender argued that certain charges had been improperly included in the finance charge, and accordingly should be backed out before any excessive charges are added in. Frazier, at *4. Specifically, the lender included a $250 “appraisal-review fee,” id., which the court agreed should have been excluded from the finance charge because “TILA regulations expressly allow lenders to exclude the cost of verifying appraisals from the finance charge,” id., at *5. The federal court rejected plaintiff’s claim that the court could not reexamine charges previously disclosed as part of the finance charge, explaining at page *4 that “the point of the entire exercise is for the court to calculate what the lender should have told the borrower and then determine whether the lender came close enough.” On the other hand, the district court found the disclosed $66 tax-service fee and $9.50 flood-hazard determination fee were properly included in the finance charge, id., at *5-*6.
The district court then turned to whether certain fees were improperly excluded from the finance charge disclosures. Frazier, at *6. The court rejected plaintiff’s claim that the $250 title examination fee should have been included in the finance charge, agreeing with the defense that the charge was both bona fide and reasonable, id. Plaintiff contended further that the $200 title abstract search fee was excessive, and that she should not have been charged more than $72 for the service; accordingly, she argued that $128 was improperly excluded from the finance charge. Id. The federal court again disagreed, holding that “there is no basis from which a factfinder could conclude that the additional $128 was not bona fide or reasonable,” id. The district agreed, however, that the $120 recording fee was excessive, particularly given that the third party paid only $56 for recording the documentation; accordingly, “$64 of the recording fee was not bona fide and should be added to the finance charge.” Id., at *7. And finally, the court considered the $200 title insurance fee, and agreed with plaintiff that the $74 charge above and beyond the $126 fee that the title insurance company charged the third party was excessive and should have been included in the finance charge. Id. The actual finance charge thus fell within TILA’s tolerance for accuracy so the lender was entitled to summary judgment on the class action’s TILA claim. Id. Of necessity, then, the class action’s claim that the lender failed to honor plaintiff’s rescission notice also failed. Id., at *8.
We do not discuss the district court’s analysis of the HOEPA claim. See Frazier, at *8-*11. We note only that the district court analyzed the issue in detail and concluded that the amount plaintiff paid in points and fees did not exceed 8% of the total loan amount and, accordingly, was not a high-cost loan within the meaning of HOEPA. Id., at *11. The federal court therefore granted the lender’s motion for summary judgment in its entirety and entered judgment in favor of the lender on the class action complaint. Id.