Burr & Forman

03.24.2014   |   Blog Articles, Consumer Finance Litigation, Dodd-Frank Act, Oklahoma

Oklahoma Federal Court Dismisses Argument that New Force-Placed Insurance Regulation is Retroactive

Ali v. Wells Fargo Bank, N.A., CIV-13-876-D, 2014 WL 345243 (W.D. Okla. Jan. 24, 2014) This action is one of the first decisions issued regarding the forced-placed insurance provision pursuant to the new mortgage servicing regulations under the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“Dodd-Frank”). In Ali, Plaintiff brought suit against her mortgage lender, mortgage loan servicer, and an insurance company asserting multiple theories of liability related to lender-placed insurance (“LPI”), by which the lender prevented a lapse of coverage for the mortgaged property. LPI, or force-placed insurance, may be obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing the loan. See 12 C.F.R. § 1024.37. Specifically, Plaintiff alleged Defendants violated section 2605 of RESPA by, inter alia, “charging premiums that [were] unfairly and egregiously costly . . . [that] cost up to ten times the amount of standard insurance that a borrower was previously paying or could obtain on the open market” and receiving a “kickback or commission on each policy” purchased by Defendants. See Pl.’s Compl., ¶ ¶ 68-77. Defendants moved for dismissal pursuant to Fed. R. Civ. P. 12(b)(6). Plaintiff argued section 2605(m) became effective on July 22, 2010, the date that Dodd-Frank was enacted. Defendants argued, on the other hand, that Plaintiff’s claim based on an alleged violation of section 2605(m) of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq., failed because that section did not become effective until January 10, 2014, and was not in effect when the alleged violation of it occurred. The court noted that, pursuant to Dodd-Frank, “the effective date of a newly-added RESPA section is either the date on which the final regulations implementing such section take effect or, if the regulations have not been issued on the date that is 18 months after the designated transfer date, then the section shall take effect on that date.” See Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1146 n.3 (10th Cir. 2013). For purposes of the LPI regulation, the date that is 18 months after the designated transfer date is January 21, 2013. Id. But the Court noted that the regulations implementing section 2506(m) were promulgated before January 21, 2013, and were schedule to take effect on January 10, 2014. See 78 Fed. Reg. 10696 (Feb. 14, 2013). Accordingly, the Court held that the LPI provision pursuant to section 2605(m) of Dodd-Frank took on January 10, 2014, and was not in effect when Defendants obtained LPI on Plaintiff’s real property. Thus, the Court dismissed Plaintiff’s claim for violation of section 2605(m) of RESPA for failure to state a claim on which relief can be granted. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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