Alert December 10, 2013

Sixth Circuit Holds Servicer Not Liable For Violations of Truth in Lending Act

The United States Court of Appeals for the Sixth Circuit affirmed in part and reversed in part a district court’s dismissal of two claims—one under the Truth in Lending Act, the other under the Real Estate Settlement Procedures Act—brought by a borrower against her mortgage loan servicer. The borrower alleged that in violation of RESPA and TILA, the servicer failed to identify the loan owner in response to her qualified written request. The borrower alleged she sent a letter to the servicer disputing whether it had properly credited certain payments she made. The servicer did not dispute that the borrower’s letter constituted a qualified written request, but instead moved for dismissal on the basis that she pled no resulting injury from the servicer’s failure to address her concerns. The district court dismissed the borrower’s claims. The borrower appealed.

In upholding the lower court’s ruling that a “mere servicer” could not be liable under TILA for failing to identify the current owner of the loan, the Sixth Circuit looked to the history and purpose of TILA. Under TILA, servicers are exempt from liability unless the servicer also is or was the owner/creditor of the obligation. According to the Sixth Circuit, the history and purpose of TILA showed that liability should only attach to creditors—and assignees are only considered creditors when they own the debt. Despite upholding the lower court’s dismissal of the TILA claim, the Sixth Circuit reversed dismissal of the borrower’s RESPA claim citing several types of damages that the complaint plausibly pled. In particular, the complaint pled damages based on allegedly miscrediting loan payments; preparing the qualified written response to which her servicer allegedly never responded; and the borrower’s credit based on information the servicer allegedly provided to credit reporting agencies). Ultimately, the Sixth Circuit concluded that the borrower’s complaint was sufficient to state a claim for violations of RESPA.