MegaStar Mortgage Loans Pay-to-Pay Fees California Class Action

MegaStar Financial Corp. services mortgages. But the complaint for this class action alleges that they “impermissibly profit” off homeowners “by charging and collecting illegal payment processing fees when borrowers make their monthly mortgage payments by telephone or online…” These are known as pay-to-pay fees, and the complaint claims they violate debt collection laws and breaches the terms of mortgages.

The class for this action is all persons (1) who have a residential mortgage loan on property in California, (2) serviced or subserviced by MegaStar, (3) who paid a fee to MegaStar for making a loan payment by phone, by IVR, at an ATM, or online, during the applicable statutes of limitations through the date of the certification of the class in this case.

The plaintiff in this case, Laurie Martindale, has a mortgage that is serviced by MegaStar. The complaint alleges that whenever she makes a payment by telephone, MegaStar charges her a $2 pay-to-pay fee. The complaint alleges, “The usual cost that a servicer like MegaStar pays to process Pay-to-Pay Transactions is $0.50 or less per transaction.” According to the complaint, MegaStar pockets the difference as profit.

The complaint alleges, “The uniform Mortgages of MegaStar’s customers do not authorize MegaStar to charge Pay-to-Pay Fees. In fact, the Pay-to-Pay Fees violate borrowers’ mortgages.”

Even if MegaStar tried to claim that the payment was related to default (since mortgages that are not paid on time are considered to be in default), falling under Paragraph 9 of the mortgage agreement, the pay-to-pay fees would still violate the agreement. The complaint quotes Paragraph 9 as saying that only “amounts disbursed by Lender under this Section 9 shall become an additional debt of Borrower secured by this Security Instrument.”

The complaint also cites two laws as having a bearing on these fees.

The first, the Rosenthal Act, is a California law about debt collection, presumably including the debt represented by a mortgage. According to the complaint, it forbids debt collectors from “[c]ollecting or attempting to collect from the debtor the whole or any part of the debt collector’s fee or charge for services rendered, or other expense incurred by the debt collector in the collection of the consumer debt, except as permitted by law.”

The law also makes it illegal to claim that a consumer debt “may be increased by any addition of … charges if, in fact, such fees and charges may not be legally added to the existing obligation.”

The second law is California’s Unfair Competition Law which claims that “unfair competition” includes any “unlawful, unfair, or fraudulent” act or practice.

The complaint alleges that a business act or practice is “unlawful” if it violates another law or regulation, and “unfair” “if it offends an established public policy or is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”

Article Type: Lawsuit
Topic: Loans
Tags: Mortgage-Related Unfair Practices, Processing or Pay-to-Pay Fees, Servicing Your Mortgage