Wednesday, March 24, 2010
The United States Court of Appeals for the Ninth Circuit recently held that Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA") does not reach the practice of "overcharging," and that certain claims under California's Unfair Competition Law, Cal. Bus. & Prof. Cod § 17200, et seq. ("UCL") are preempted by the National Bank Act ("NBA"). A copy of the opinion is attached.
Plaintiffs refinanced their home mortgage loan through Wells Fargo, who charged Plaintiffs an underwriting fee of $800 for the refinancing. Plaintiffs alleged that the fee violated RESPA Section 8(b) because it was not reasonably related to Wells Fargo's actual costs of performing the underwriting. Plaintiffs also alleged Wells Fargo's conduct was "unfair," "fraudulent" and "illegal," which are three separate claims under the UCL.
The District Court granted Wells Fargo's motion to dismiss as to the RESPA and UCL violations and the Appellate Court affirmed on all counts.
Beginning with the "overcharge" claim under RESPA, the Court considered HUD's position on the issue, which interprets that section as prohibiting overcharges. However, relying on the plain language of the statute and the reasoning of the Second Circuit, the court found that "whatever its size, the alleged overcharge by Wells Fargo was 'for' the services actually rendered by Wells Fargo and received by the borrowers, and therefore was not prohibited by Section 8(b)." Therefore, the Ninth Circuit joined the Second, Third and Eleventh Circuits in holding that "Section 8(b) is unambiguous and does not extend to overcharges…" And, given the plain meaning of the statute, the Court declined to consider whether HUD's interpretation of Section 8(b) warranted deference.
Turning to the UCL claims, Plaintiffs first argued the fees were "unfair" essentially because they were too high. The Ninth Circuit concluded that two different OCC regulations, which possess "the same preemptive effect of the [NBA] itself," preempted this claim. Specifically, the court held that 12 C.F.R. § 34.4(a) and 12 C.F.R. §7.4002(b)(2) preempted the claim because the "OCC has clearly provided how the fees are to be determined" and that "these are business decisions to be made by each bank."
Plaintiffs next alleged the fee was "fraudulent" under the UCL because Wells Fargo allegedly failed to disclose the costs it incurred for the services. The Court held this claim to be preempted by 12 C.F.R. § 34.4(a) as well. Citing directly to the regulation, the court explained that § 34.4(a)(9) "expressly authorizes banks to 'make real estate loans…without regard to state law limitations concerning…[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in [credit-related documents].'"
Finally, Plaintiffs alleged that the amount of the underwriting fees, together with the failure to disclose those fees, supposedly violated various federal and state laws and therefore constituted "unlawful" business practices in violation of the UCL. The Ninth Circuit, however, held that "[t]o the extent that any of these state laws address overcharges, mark-ups, and disclosure duties, by or of a national bank, they are preempted and cannot serve as predicate violations for the claim of unlawful conduct." Plaintiffs argued it was a predicate violation of 18 U.S.C. §1001 and 1010 (which generally proscribe false statements in matters involving the federal government and HUD, respectively) for Wells Fargo to list the amounts charged to Plaintiffs on the HUD-1 statement, instead of the amounts it cost Wells Fargo to perform or to subcontract those services. The Court rejected this argument, finding that the plain language of RESPA only requires lenders to list the "'charges imposed upon the borrower.'" The Court, therefore, affirmed the lower Court's dismissal of the "unlawful" complaint for failure to state a claim.
Eric Tsai
McGinnis Wutscher Beiramee LLP
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989
McGinnis Wutscher Beiramee LLP
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San Diego, CA 92101
Direct: (619) 955-6989
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Email: etsai@mwbllp.com
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