No respite from RESPA? Why banks may face increased civil litigation
Posted on 06/28/2012 at 01:08 PM by John Lande
Lost in Thursday's coverage of the United States Supreme Court's decision regarding the Affordable Care Act was the Court's action regarding another important constitutional issue. The Court dismissed, without a decision or opinion, the case First American Corp. v. Edwards. The question before the Court was whether it violated the Constitution to allow a plaintiff to bring a lawsuit under the Real Estate Settlement Procedures Act of 1974 ('RESPA') if she had not suffered any actual harm. To understand this case, a little background is helpful. RESPA prohibits the payment of 'any fee, kickback, or thing of value' in exchange for business referrals of settlement service business involving a federally related mortgage loan. RESPA also prohibits sellers from requiring that buyers use a particular title insurance company. One of the purposes of these two provisions is to ensure that closing costs are not artificially inflated. Individuals who are aggrieved under RESPA may bring a private lawsuit against the bank, mortgage company, or title company (among others) that may have violated the statute. There are also criminal penalties for violating the statute, which may be enforced by federal or state officials. The issue in First American Corp was whether a plaintiff could still bring her lawsuit when there was no evidence that the closing costs associated with her purchase were increased as a result of RESPA violations. The United States Constitution requires that for plaintiffs to bring a lawsuit they must have suffered an 'actual injury.' The United States District Court for the Central District of California found in favor of the Plaintiff, concluding that even though there was no evidence of increased closing costs she had still suffered an 'injury.' The Court of Appeals for the Ninth Circuit agreed and held that the plaintiff could bring her RESPA suit without any evidence of having actually paid more in closing costs due to the RESPA violation. The Supreme Court then granted review of the case. The parties submitted briefs, and the case was argued before the Court on November 28, 2011. On June 28, 2012, the Court dismissed the case without any decision or opinion. It is not uncommon for the Court to dismiss a case without providing any explanation. It is also impossible to know why the Supreme Court dismissed First National. It could be that the Court felt the arguments were not sufficiently well developed. The Court may have decided that the facts of the case were not well suited to resolving the issue, or some other reason. The effect of the ruling is to leave the Ninth Circuit's decision in place. Regardless, this case has important implications for other consumer financial protection statutes and regulations. CFPB is now responsible for promulgating regulations under RESPA. If the Ninth Circuit's decision continues to be the law, then banks and financial institutions could face civil liability for a host of statutory and regulatory violations even if consumers are not directly harmed. The Ninth Circuit's approach has already been adopted by the Third and Sixth Circuit Courts of Appeals, but not yet by the Eighth Circuit which covers Iowa.
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