Alert June 10, 2014

Illinois Federal Court Rules on Dodd-Frank’s Truth in Lending Act Amendment

The United States District Court for the Northern District of Illinois granted summary judgment denying a putative class action suit against a mortgage servicer for alleged violations of the Truth in Lending Act concerning the prompt crediting of payments. Plaintiffs alleged that the mortgage servicer failed to credit their payments as of the date of receipt in violation of TILA and Regulation Z. According to plaintiffs, the mortgage servicer did not promptly credit online payments at the time plaintiffs completed the online payment form. As a result of the mortgage servicer’s policy, plaintiffs’ payments were not credited to their account within two days and they were assessed late fees. The mortgage servicer moved for summary judgment.

Section 1464 of the Dodd-Frank Act amends TILA and requires servicers to credit a payment to the consumer’s loan account as of the date of receipt. In rejecting the argument that the online payment form was the equivalent of a check because the form used the image of a check, the Court took the position that it was an instruction for plaintiffs’ banks to wire payment (an electronic transfer). The Court also relied on the CFPB’s staff commentary to Regulation Z on the “date of receipt”, to conclude that the mortgage servicer’s crediting of the payments at the time it received the payments from the third-party bank, and not at the time the payment instruction was sent, was appropriate.