NC Federal Court Rejects Attempt to Incorporate Non-Actionable TILA Claims Against Mortgage Servicer Into State Consumer Protection Laws

A federal court in North Carolina dismissed a class action against a mortgage servicer which sought to use state consumer protection statutes to pursue violations based on Truth in Lending Act (TILA) provisions which did not provide for liability against servicers.

The borrower alleged that his mortgage servicer stopped sending him monthly statements after he declared bankruptcy in 2006.  However, the borrower later re-affirmed the mortgage debt instead of having it discharged in bankruptcy.  The borrower defaulted on the mortgage in 2007 and the servicer ostensibly charged off the debt.  In 2018, the CFPB amended its TILA regulations to require mortgage servicers to provide post-bankruptcy consumers with monthly statements unless certain specified exemptions applied.  Thereafter, the servicer began sending the borrower new monthly mortgage statements which reflected retroactive interest and fees which had allegedly accrued over the preceding years.

The borrower claimed that these additional charges were prohibited by TILA since the servicer had not sent him monthly statements for the time period when the charges allegedly accrued.  The borrower filed a class action against the servicer based on violations of North Carolina state consumer protection laws which governed debt collection and prohibited unfair and deceptive trade practices.

The defendant servicer filed a motion to dismiss.  The court found that the applicable provisions of TILA only allowed actions against creditors for violations and expressly exempted servicers from liability in most cases.  The borrower claimed that his state law claims were not predicated on the servicer’s failure to provide periodic statements in violation of TILA, but rather on the attempt to collect interest and fees to which the servicer was not entitled.  However, the court found that the interest and fees would only be unlawful to collect if they were prohibited by TILA.  The court noted that other courts had rejected attempts to use causes of action under other statutes to pursue alleged TILA non-compliance by servicers.  Since the borrower failed to allege any violations of the North Carolina consumer protection laws independent of the non-actionable TILA violations, the court dismissed the claims.