Alert May 29, 2012

Supreme Court Upholds Limited Interpretation of RESPA

The United States Supreme Court has ruled that 12 U.S.C. § 2607(b), a section of the Real Estate Settlement Procedures Act, applies only to fees shared between two or more settlement service providers, and does not provide a cause of action for borrowers seeking to challenge the collection of fees by lenders.  The borrowers had obtained mortgage loans from the defendant and later filed suit alleging that the defendant violated § 2607(b) by charging them fees for which no services were provided, specifically, a loan discount fee.  The defendant argued successfully in the lower courts that § 2607(b) does not apply to the collection of fees agreed upon between borrowers and lenders unless the fee was impermissibly split among two or more settlement service providers.  Since the loan discount fee was agreed to between the borrower and defendant, and retained by the defendant, the fee was not within the reach of the statute.

The Supreme Court unanimously affirmed the judgment for the defendant and rejected the plaintiffs’ interpretation of the statute, holding that § 2607(b) “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more persons.”  Of equal significance, the Court also affirmatively held that § 2607(b) does not reach a single provider’s alleged retention of an unearned fee, and thus does not provide a means for a borrower to challenge a lender’s fee on grounds that such fee was “unreasonably high.”  The Court’s ruling represents a major victory for the mortgage industry; lenders and settlement service providers have faced many lawsuits in recent years that will no longer be viable as a result of this decision.  Click here for the opinion. The defendant was represented by Goodwin Procter’s Tom Hefferon.