Morris v. PHH Mortgage Corp.

Public Citizen filed an amicus brief, jointly with National Association of Consumer Advocates and National Consumer Law Center, in response to a motion for preliminary approval of a class action settlement. The underlying litigation challenged the practice by mortgage servicers of charging so-called convenience fees to certain borrowers seeking to make mortgage payments over the Internet or by phone.  The plaintiffs allege that the fees are unlawful under the Fair Debt Collection Practices Act because they were not authorized by borrowers’ mortgage documents.

Under the proposed settlement, class members would receive a refund of a portion of convenience fees previously paid, and their mortgage documents would be amended en masse to authorize the collection of convenience fees in the future. To the extent that this mass amendment was ineffective, class members would have been under an obligation to execute documents to effect it.

Our amicus brief raised concerns about whether the parties had shown that the proposed settlement would be fair, reasonable, and adequate. The brief explained that permitting a mortgage servicer to use the class action device to amend notes and mortgages en masse raised significant legal and policy questions, because mortgage terms typically are recorded in local recorders’ offices and because mortgage servicers are limited in their authority to amend mortgage documents, which are typically owned by investors who purchase the loans in secondary market. The brief also raised concerns that the mass amendment would give a significant benefit to the defendant mortgage servicer, as opposed to the class.

Finally, the brief urged the court to scrutinize the settlement because it provided for a reverter to the defendants of unclaimed funds, and because certain aspects of the settlement—in particular, an expansion of the original class definition from a state-wide to a nationwide class during the settlement negotiation process—raised red flags about the possibility of a reverse auction.