Recently I had occasion to review a loan refinancing agreement for a client, specifically the “Estimated Refinancing Statement.” These statements, usually provided at the time or just before the loan is funded, are the lenders estimates of what it will cost to obtain the loan and tell the borrower what he or she will have to pay. Mortgages typically involve hundreds of thousands or, in cities like San Francisco and New York, millions of dollars and the fees comparatively modest.
The statement in this refinance, while not unusual, contained no less than 11 charges described as “fees,” all presumably incurred in the lender’s providing of the loan. These fees ranged from a minimal $5.50 “Credit Monitoring Fee” to a $1,710 “Tax Service Fee.” All totaled, the fees amount to over $5,000 – still modest compared to a million dollar loan, but when charged to thousands of borrowers themselves amount to tens of millions of dollars. Some of these fees, such as the $175 “Mobile Signing Fee” or the $37.00 ‘Insurance Monitoring Fee’ seem to be either unnecessary (does insurance need to be “monitored” when the lender simply needs to know that a policy is in existence?) or excessive (is there a mobile signing fee even if the borrower signs the documents at the lender’s office?)
Are borrowers simply stuck with paying whatever fees a lender dreams up? No. In California, the Unfair Competition Law (UCL, Bus. & Prof.Code, § 17200 et seq.) provides an alternative.
Loan Fees are Often Just a Way of Misrepresenting Additional Profits
In the case of McKell v. Washington Mutual, Inc., 142 Cal.App. 4th 1457 (2006), the Court of Appeals held that Washington Mutual violated the UCL by charging its borrowers fees that it did not have to pay. For example, Washington Mutual required borrowers to pay the cost of automatic underwriting and wire transfer fees and charged $400 and $250 respectively for such services. In fact, because the loans were to be sold to Fannie Mae and Freddie Mac, lenders were required to use automated software that cost only $20. Rather than pass the savings on to the borrowers Washington Mutual simply retained the difference.
The court found that such practices violated the UCL, noting that a borrower would reasonably believe that these were costs that Washington Mutual incurred and thus were appropriately charged as necessary for the loan. In fact, the charges to the borrower were far in excess of what WaMu paid. It wasn’t just the amount, but the fact that the lender misrepresented the charges: “the gravamen of plaintiffs’ complaint is not that Washington Mutual’s fees are too high. It is that Washington Mutual leads borrowers to believe it is charging them for the cost of certain services it provides when in reality it is charging them substantially in excess of such costs. Therefore, plaintiffs have alleged unfair business practices within the meaning of the UCL.” McKell, at 1474.
The 11 fees listed on the current loan may or may not be legitimate costs incurred and paid by the lender to a third-party. If, however, the services described are not provided or are largely a profit center, like charging $400 for a $20 service, borrowers can do something about it. As with most small charges imposed on a vast number of people, no one individual has any rational basis for seeking relief. If it costs a few hundred dollars to file suit, it makes no sense to do to recover that amount or less. Recognizing this, states and the federal government allow affected people to proceed as a class if the case meets certain specified criteria. Done this way, the millions of dollars unlawfully obtained can be recovered from the wrongdoer and, hopefully, the practice will stop.
For further information on consumer class action lawsuits, please contact a San Francisco class action attorney at The Lawrence Law Firm at 415-504-1601. We advocate for the public, consumers, and investors nationwide.