District Court (Cal.) Addresses When “Delinquent” Debts Trigger the Rosenthal Act

In Sanders v. LoanCare LLC, No. 18-CV-09376, 2019 U.S. Dist. LEXIS 20900, at *2-3 (C.D. Cal. Feb. 1, 2019), Judge Otero addressed, albeit in a mortgage situation, whether the collection of an online payment fee during a 10-day grace period triggered the Rosenthal Act.  The facts were as follows:

In February 2018, Plaintiff received a Notice of Service Transfer (“Notice”) stating that LoanCare LLC (“Defendant”) would begin collecting payments on behalf of CIT. (Compl. ¶ 21.) The Notice provided instructions for making payments, and included information about “Special Request Fees,” such as $5.00 fees for online payments made during the first ten days of the grace period, and $10.00 fees for online payments made during the last five days of the grace period. (Compl. ¶¶ 21-22.) In March 2018, CIT assigned Defendant the servicing rights to Plaintiff’s loan, and notified Plaintiff that it would not accept any future payments. (Compl. ¶ 6.) On or about April 16, 2018, “the last date of the grace period for March,” [*3]  Plaintiff made an online payment to Defendant and was assessed a $10.00 fee. (Compl. ¶ 22.) On April 22, 2018, Plaintiff contacted Defendant and “demanded to know what provision of the loan documentation authorized [Defendant] to charge the Special Request Fees,” but received only “an auto-generated response thanking her for contacting [Defendant].” (Compl. ¶ 22.) On May 16, 2018, Plaintiff was again charged a $10.00 fee while making her online payment. (Compl. ¶ 23.) Plaintiff again objected in writing, and at some point afterwards, Defendant waived the $10.00 charges for Plaintiff’s April and May payments. (Compl. ¶ 23.)  Plaintiff continued to make payments from June to September of 2018. (Compl. ¶ 24.) In June, July, and August, Plaintiff made online payments for which Defendant charged Plaintiff $10.00 in Special Request Fees per payment. (Compl. ¶ 24.) In September, Plaintiff made her payment by phone, but was not charged the Special Request Fee associated with telephonic payments because the online payment system was offline and unavailable. (Compl. ¶ 24.)

Judge Otero found that the debt was “delinquent” within the definition applied by the California Attorney General in a 2002 opinion.

Defendant takes the position that Plaintiff “has not and cannot allege that she was the object of debt collection activity.” (Mot. 11-12.) The basis for this argument is that, because Plaintiff regularly paid the amount due, there is no “debt that is delinquent or alleged to be delinquent.” (Mot. 18) (emphasis added). In essence, Defendant argues that Plaintiff’s debt was not “due or owing,” and that she therefore could not be the subject of collection activity under the Rosenthal Act. In a 2002 opinion addressing the application of the Rosenthal Act, the California Attorney General concluded that debts are “due and owing” when they “become delinquent, making them subject to collection.” 85 Cal. Op. Att’y Gen. 215 (2002). By contrast, “obligations that are ‘current,’ prior to becoming delinquent and before [*9]  the date at which payment required, are not subject to the Act’s requirements.” Id. The Attorney General’s construction of debts that are “due and owing” can thus be read as referring to debts for which payment is immediately or past due. See Burris v. HSBC Bank USA, Nat’l Ass’n, No. 14-CV-02242 AB (CWX), 2014 WL 12772260, at *5 (C.D. Cal. Dec. 19, 2014) (“According to the Attorney General of California, ‘due’ means ‘having reached the date at which payment is required,’ and ‘owing’ means ‘due to be paid'”).  In arguing that Plaintiff’s debt was not “due and owing,” Defendant note that Plaintiff does not allege that her loan was “delinquent,” as well as the fact that she made “dutiful payments.” (Mot. 18.) The Court finds that while Plaintiff may not have used the term “delinquent,” she has alleged sufficient facts to establish that her mortgage debt was, in fact, past due. In her Complaint, Plaintiff alleges that there was a “15-day ‘grace period’ after the due date for each payment.” (Compl. ¶ 17.) Plaintiff further alleges while she did indeed make payments, she made them on the last day of the grace period for each month. (Compl. ¶¶ 18, 22-24.) Accepting Plaintiff’s allegations as true, and drawing all reasonable inferences in her favor, the Court [*10]  finds that Plaintiff has pled sufficient facts for the Court to logically conclude that Plaintiff’s mortgage debt was “due and owing” at the time Defendant’s alleged violations occurred. Cf. Burris v. HSBC Bank USA, Nat’l Ass’n, No. 14-CV-02242 AB (CWX), 2014 WL 12772260, at *6 (C.D. Cal. Dec. 19, 2014) (finding that credit card debt is not “due or owing” prior to the due date listed in the statement).

Judge Otero next found that the charges were not permitted by the deed of trust or the law.

Section 1692f(1) of the FDCPA prohibits debt collectors from collecting “any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Here, Plaintiff alleges that Defendant violated Section 1692f(1) by assessing Special Request Fees that were “not authorized by contract or law.” (Compl. ¶ 47.) According to Plaintiff, there is “no deed of trust or promissory note for any residential mortgage authoriz[ing] Defendant to impose the Special Request Fees.” (Compl. ¶ 26.) Defendant contends that “there is no FDCPA violation.” However, Defendant does not argue that the fees are permitted by either the deed of trust or promissory note that form the basis for Plaintiff’s mortgage debt. (Mot. 11.) Instead, Defendant’s only argument in support of its contention that it did not violate Section 1692f(1) appears to be a suggestion that the fees are permitted by law. Specifically, Defendant suggests that “loan-related fees, including servicing fees, are [*16] generally a matter of federal regulation such that state laws seeking to regulate such fees are preempted.” (Mot. 17.) However, the authority on which Defendant relies is limited to lending regulation for federal savings associations, and therefore inapplicable in the context of the instant action.  In its Motion, Defendant cites to Bank of Am. v. City & Cty. of San Francisco, 309 F.3d 551, 560 (9th Cir. 2002), as amended on denial of reh’g and reh’g en banc (Dec. 20, 2002) (finding that federal regulations authorize federal savings associations to charge fees for deposit and lending-related services), and Lopez v. World Sav. & Loan Assn., 105 Cal. App. 4th 729, 743, 130 Cal. Rptr. 2d 42 (2003) (holding that homeowner’s action against a federally-chartered savings association alleging violation of a California statute capping payoff demand statement fees was preempted because federal law “occupies the entire field of lending regulation for federal savings associations”). Neither case deals with fees under 15 U.S.C. § 1692f.  In light of the above, the Court finds that Plaintiff has alleged sufficient facts to “allow the court to draw the reasonable inference” that Defendant is liable for a violation of Section 1692f(1), and by extension, a violation of Section 1788.17 of the Rosenthal Act. See Iqbal, 556 U.S. at 678.