Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Kan.: Homeowners’ deceptive trade practices claims against mortgage loan provider can proceed, (Jan 22, 2014)

By Linda O’Brien, J.D., LL.M.

Two homeowners’ claims against a banking and mortgage services provider for engaging in deceptive and unconscionable practices by misrepresenting the interest rates, payoff amount, prepayment penalty, and certain loan programs in connection with a refinanced loan in violation of the Kansas Consumer Protection Act (KCPA) withstood dismissal, the federal district court in Topeka has ruled (Schneider v. Citibank, N.A., January 21, 2014, Crow, S.).

In 2007, Randall and Amy Schneider obtained a residential mortgage loan originated by Citibank, N.A. The homeowners obtained the Citibank loan through a representative of Primerica Financial Services Home Mortgages, Inc. As part of the loan, the Schneiders chose to participate in a Payment Waiver Protection Program and an Equity Builder Interest Rate Discount Program. In 2010, the homeowners applied to Citibank to refinance their loan, which was denied. Subsequently, the Schneiders obtained a refinance loan from another lender. At the closing of the refinance loan, the Schneiders were required by Citibank to pay a prepayment penalty and an amount for the release of lien on the mortgage. The Schneiders filed suit against Citibank alleging deceptive acts and practices in violation of the KCPA, among other claims. Specifically, the homeowners claimed that the company failed to properly administer the loan, overcharged for interest, improperly processed their request to use the Payment Waiver Protection Program, and overcharged in the loan payoff amount. Citibank moved to dismiss for failure to state a claim.

The KCPA prohibits deceptive and unconscionable acts and practices in connection with a consumer transaction. The court determined that Citibank’s grant of a home loan mortgage to the Schneiders was a consumer transaction and claims regarding the servicing of the mortgage loan after its origination were within the scope of the KCPA. In rejecting Citibank’s argument that the KCPA claims were untimely as it accrued when the Schneiders took out the loan in 2007, the court found that the claims did not accrue until Citibank engaged in the prohibited practices of demanding prepayment and collecting unearned funds when the Schneiders refinanced their loan in 2010. Thus, their suit was timely brought within the KCPA three-year statute of limitations period.

Additionally, the Schneiders sufficiently pleaded that there was unequal bargaining power between the parties, Citibank willfully misrepresented material facts regarding the payments during the refinance process, and the misrepresentations were likely to mislead consumers. A motion to dismiss the claims at the early stage of the litigation was premature, the court concluded.

The case is No. 13-4094-SAC.

Attorneys: Donna L. Huffman (The Law Office of Donna Huffman) for Randall A. Schneider. Jennifer Ann Donnelli (Bryan Cave LLP) for CitiMortgage, Inc., Citibank, National Association, Citigroup, Inc. and Primerica Financial Services Home Mortgages, Inc.

Companies: CitiMortgage, Inc.; Citibank, National Association; Citigroup, Inc.; Primerica Financial Services Home Mortgages, Inc.

Cases: StateUnfairTradePractices KansasNews