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Freeman v. Quicken Loans Inc.
What’s at stake?
The right of consumers to sue corporations who steal their money.
Whether homeowners can sue mortgage lenders for charging unearned fees.
February 21, 2012
Outcome: 9-0. Justice Scalia delivered the opinion of a unanimous Court.
What the Court held:
This case arises from a group of lawsuits out of Louisiana in which borrowers, including Tammy Freeman, claim that Quicken Loans violated the Real Estate Settlement Procedures Act (RESPA) by charging them loan-discount fees on their mortgages without providing reduced interest rates in return. Quicken says that the fees charged to borrowers were both legal and earned.
The question for the Supreme Court was how to interpret RESPA, which prohibits kickbacks and other abuses in the mortgage industry. The key language in the statute reads:
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.
The Freemans argued that RESPA was intended to forbid both kickbacks and unearned fees, regardless of whether a third party was involved in the improper fee arrangement. Quicken argued that the law only prohibits lenders from receiving an unearned fee when that fee is divided with a third party and does not address unearned fees received by the lender alone. The Fifth Circuit agreed with Quicken, ruling that there was no violation of the Act if an unearned fee is charged by a single party and there is no third party taking a share. The circuit courts were deeply divided on this issue, with the Fourth, Fifth, Seventh and Eight Circuits limiting the Act to third party kickbacks and the Second, Third and Eleventh Circuits believing that the Act applies to all unearned fees. The Department of Housing and Urban Development supported the interpretation that the statute should apply to all unearned fees, and the Solicitor General filed a brief supporting the Freemans’ petition for certiorari.
The Supreme Court, in an opinion by Justice Scalia, held that in order to establish a violation of §2607(b) of RESPA, a charge for settlement services has to have been divided between two or more persons. Hence, a single provider’s retention of an unearned fee does not violate §2607(b). The Court held that §2607(b) requires that there be two distinct, sequential exchanges – a single mortgage lender cannot both make and accept the charge. Because the petitioners did not demonstrate that Quicken split the challenged charges with anyone else, the Court found that the lower court properly granted summary judgment in favor of Quicken.
By siding with Quicken, the Court is allowing mortgage lenders to place unexplained and unearned fees on their loans, in clear contravention of Congress’s intent in passing RESPA: to eliminate fraudulent corporate behavior in the mortgage industry.