EIGHTH CIRCUIT UPHOLDS DISMISSAL OF CLAIMS ALLEGING FAILURE TO WITHDRAW USING ACH SYSTEM
On December 8, 2006, the Eighth Circuit Court of Appeals upheld a dismissal of all the claims against a loan servicer for failing to withdraw mortgage payments through an automated clearing house (ACH) authorization. The Court held that the servicer was not liable to Plaintiffs for its failure to withdraw mortgage payments pursuant to the ACH authorization.
Initially, the Plaintiffs set up an automatic debit feature through ACH that automatically withdrew their mortgage payments. The dispute arose when Provident Bank, the original mortgage company, sold Plaintiffs’ mortgage to Wells Fargo. Wells Fargo engaged Ocwen Federal Bank to service the loan, and although the loan was set up for the ACH program, the correspondence sent to the Plaintiffs informed them that the automatic draft information was not transferred with the assignment of the loan. Ocwen advised the Plaintiffs that a new application was necessary to resume the automatic draft program. The Plaintiffs refused to execute another ACH authorization, and defaulted on the mortgage.
Plaintiffs brought both state and federal claims against Ocwen,and both the North Dakota District Court and the Eighth Circuit Court of Appeals dismissed these claims. Of particular importance to the Appeals Court was the language in the original ACH authorization which read, “I AM RESPONSIBLE FOR MAKING PAYMENTS ON THE NOTE BY OTHER MEANS IF MY PAYMENT IS NOT DRAFTED ON THE DAY SPECIFIED NO MATTER THE CAUSE.” The Appeals Court found that there was no contract between the Plaintiffs and Ocwen that required Ocwen to use the ACH system. Also, the disclaimer in the original contract prevented the Plaintiffs from proving that Ocwen had a duty to debit their bank account under the ACH authorization.
The Court upheld the dismissal of the Plaintiffs’ defamation claim against Ocwen for reporting their mortgage default to national credit reporting agencies because the truth of Plaintiffs’ default was an absolute defense. The dismissal of Plaintiffs’ claim under the federal Fair Debt Collection Practices Act was also upheld because Ocwen was not obligated to use the ACH system and there was no evidence of abusive collection practices.
This decision emphasizes the importance of including disclaiming language that places the ultimate responsibility on the consumer for making payments despite the existence of a valid ACH authorization.
Michael Tomkies and Kathleen Manley