In Fowler v. U.S. Bank, the plaintiff alleged among other things a cause of action under the Truth in Lending Act's section 1639b(c) stemming from a residential mortgage loan transaction. Plaintiffs entered into the transaction with defendants in 2006. Section 1639b(c) was recently amended as part of the broader Dodd-Frank mortgage rule amendments that became generally effective Jan. 10, 2014 with the exception of certain provisions. The court held that the recently implemented loan originator compensation rule does not retroactively apply to mortgage loan transactions originated prior to the Jan. 1, 2014, the effective date of the rule.
Plaintiffs alleged the broker and original lender’s conduct in connection with a payment of a yield spread premium violated section 1639b(c) because such conduct amounted to a steering incentive, which the statute was designed to prohibit. Defendants argued plaintiffs’ claim was barred by the three-year statute of limitations for claims under section 1639b(c). The court recognized that although Title 15 of U.S. Code, section 1640(k), provides an exception to the three-year statute of limitation for claims brought in the context of foreclosure, plaintiffs’ section 1639b(c) claim failed because it did not retroactively apply to their 2006 mortgage loan transaction. After analyzing the legislative history of the loan originator compensation rule, Title 15 of U.S. Code, section 1639b, the court held that the final rule was effective on Jan. 1, 2014 and that the CFPB’s implementing regulations did not intend to apply the regulations retroactively. According to the court, “the operative presumption, after all, is that Congress intends its laws to govern prospectively only.” Without any basis to infer otherwise, the court presumed that section 1639b(c) does not apply retroactively to the 2006 mortgage loan transaction. Thus, although the conduct complained of by plaintiffs was prohibited under title 12 of the code of federal regulations, section 226.36, as early as April 1, 2011, plaintiff’s claim under section 1639b(c) was due to be dismissed.
Seth Muse, an associate in the Birmingham, Ala., office of Burr & Forman LLP, contributed to this blog.