A District Court judge in North Carolina has denied a defendant’s motion to dismiss claims over its charging of “pay-to-pay” fees. The decision keeps alive a proposed class action alleging that a mortgage servicer violated the North Carolina Debt Collection Act (NCDCA) and the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA) by charging borrowers fees to make mortgage payments online or by phone.
The background: The plaintiff obtained a mortgage on a North Carolina home and began making payments in 2023. The defendant serviced the loan and charged fees of up to $6.75 for automated payments and up to $15 for payments made with a representative.
- The plaintiff alleged these fees were unlawful because the mortgage documents did not expressly authorize them. He also argued the fees far exceeded the actual cost of processing payments and effectively resulted in double-charging, given the servicer already received compensation for collecting and managing payments.
- The defendant sought dismissal, arguing that:
- it did not collect or profit from the fees, which it claimed were imposed by a third-party processor;
- the fees were optional and therefore not unfair; and
- the fees were legally permissible because they were not expressly prohibited.
The ruling: Judge Irene C. Berger of the District Court for the Middle District of North Carolina rejected those arguments and allowed the claims to move forward.
- On the issue of third-party involvement, Judge Berger found the plaintiff had sufficiently alleged that the servicer either charged or controlled the charging of the fees. The servicer’s denials, the court noted, were “irrelevant at the pleadings stage.” The order highlighted that agency questions are typically factual and not suitable for dismissal early in litigation.
- On whether the fee was incidental to the debt, the court cited the Fourth Circuit’s observation that it is difficult to see “how the convenience fee is not incidental to the debt. Without the mortgage payment, there is of course no convenience fee.”
- Judge Berger also rejected the argument that the servicer was “legally entitled” to charge the fees simply because no law expressly prohibits them. The court pointed to prior rulings holding that the NCDCA requires affirmative legal authorization, not the mere absence of a prohibition.
- Finally, the judge found the allegations of unfairness and deception sufficient to allow the NCUDTPA claim to proceed. Among other factors, the plaintiff alleged the actual cost of processing payments was far lower than the fee charged and that borrowers had no ability to choose a servicer that would accept their preferred payment method without added charges.
