Seventh Circuit holds that an online mortgage payment is deemed received under TILA on the date the customer authorizes the payment rather than the date the lender receives the funds

The Seventh Circuit reversed a district court’s decision which held that under TILA the date of receipt of an online mortgage payment is the date the servicer receives the funds rather than the date the online payment is authorized. In Fridman v. NYCB Mortgage Co., 14-2220 (7th Cir. Mar. 11, 2015) the mortgagor, on behalf of herself and a putative class, brought suit against her mortgage servicer for wrongly crediting her online payment two business days after the payment was authorized, causing the grace period to expire and a late fee to incur. The mortgagor asserted that the servicer’s practice of crediting online payments two business days after the payment is authorized violates 15 U.S.C. §1601 of TILA, which requires mortgage servicers to credit online payments on the day of authorization. The servicer argued that an electronic payment authorization is not one of the payment types defined under TILA. Rather, it is nothing more than the initiation of the process by which the servicer asks the mortgagor’s bank to make the actual payment. And even if an electronic payment authorization is deemed a payment for TILA purposes, summary judgment was still proper because the date of receipt of the payment was affixed once the funds were transferred from the mortgagor’s bank. Therefore, the servicer’s customary practice of waiting two business days before crediting online payments to a customer’s account did not violate TILA. The Seventh Circuit reversed holding that not only is an electronic payment authorization within the definition of a means of payment described under TILA, but TILA generally requires a servicer to credit online payments on the same day that the authorization is made. This protects the consumer against unwarranted delay by the servicer in order to rack up late fees. An electronic payment authorization initiated on the servicer’s website should be understood as a payment instrument according to TILA and, in turn, must be credited to the mortgagor’s account when the payment authorization reached the servicer. The dissent maintained that the court stretched the statute beyond its plain meaning and even suggested that, given this decision, servicers should either not accept online payments or reduce or eliminate grace periods all together in order to avoid similar issues.

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