Bomhoff v. Nelnet Loan Services, Inc., 92,112

• Decision Date: 22 April 2005
• Docket Number: No. 92,112,92,112
• Parties: JENNIFER R. BOMHOFF, Appellant, v. NELNET LOAN SERVICES, INC., Appellee.
• Court: Kansas Supreme Court

279 Kan. 415

109 P.3d 1241

JENNIFER R. BOMHOFF, Appellant, v. NELNET LOAN SERVICES, INC., Appellee.

No. 92,112

Supreme Court of Kansas.

Opinion filed April 22, 2005.

Phillip L. Turner, of Turner & Turner, of Topeka, argued the cause, and Dan E. Turner, of the same firm, was with him on the brief for appellant.

Kurt D. Maahs, of Morrow, Willnauer & Klosterman, L.L.C., of Kansas City, Missouri, argued the cause, and was on the brief for appellee.

The opinion of the court was delivered by

NUSS, J.

Jennifer Bomhoff sued Nelnet Loan Services, Inc., (Nelnet) for conversion, fraud, breach of contract, and violations of the Kansas Consumer Protection Act (KCPA), K.S.A. 50-623 et seq., because of Nelnet's actions regarding her student loan. Specifically, she alleged that Nelnet acted contrary to her written instructions to apply all of a $1,000 prepayment to the loan principal by instead first applying $193.40 to accrued interest, with the balance to principal. The district court granted Nelnet's motion for summary judgment on all causes of action. Bomhoff appealed, and this court transferred the case from the Court of Appeals pursuant to K.S.A. 20-3018(c).

The sole issue on appeal is whether the district court erred in granting summary judgment to Nelnet. We hold the court did not err, and its judgment is affirmed.

FACTS

The material facts are not in dispute. On June 16, 1997, Bomhoff signed a Consolidation Loan Application / Promissory Note (the Note) to consolidate her student loans with Nelnet. The Note included a section titled "Promise to Pay," which stated:

"13. PROMISE TO PAY: I promise to pay to the order of the lender named below such loan amount as is advanced on my behalf, plus simple interest on the unpaid principal balance at the rate described on the reverse side of this note. I will pay such amount in accordance with the Disclosure Statement and Repayment Schedule which will be furnished to me at the time my present obligations are discharged."

The Note also contained the following provisions:

"A. GENERAL

"I understand that the lender has applied for guarantee coverage of this loan through the Nebraska Student Loan Program, Inc. and because of this, the loan is subject to, and the terms of this Promissory Note will be interpreted, in accordance with Title IV, Part B of the Higher Education Act of 1965, as amended, (the "Act"), federal regulation adopted under the Act, and the Rules and Regulations of NSLP. To the extent not governed by federal law, this Note shall be governed by the laws of the jurisdiction in which the lender is located.

"B. DISCLOSURE STATEMENT AND REPAYMENT SCHEDULE

"I understand that I will receive a Disclosure Statement and Repayment Schedule which will identify my actual Loan Amount (as determined by the lender), interest rate, fee amounts, due dates and itemization of loans consolidated. This will be provided to me at the time my present creditors have discharged my obligations on the loans selected for consolidation. If after receiving my Disclosure Statement and Repayment Schedule I have any questions concerning the information contained in this Note, I will contact the lender. If the information on the Disclosure Statement conflicts with the Application/Promissory Note, the Disclosure Statement and Repayment Schedule shall be controlling.

. . . .

"G. PREPAYMENT

"At my option and without penalty, I may prepay at any time all or any part of the unpaid principal balance of the Note. In the event of prepayment, I will be entitled to a refund of any unearned interest which I have paid. The amount of any such rebate will be computed by the same method by which interest payments were computed." (Emphasis added.)

Two months later on August 19, 1997, Bomhoff was provided a Disclosure Statement and Repayment Schedule. The original principal amount of the loan was $19,902.38; the annual interest rate was 8%; and the first payment was due September 24, 1997.

For the approximate 2-year period from September 24, 1997, until December 24, 1999, Bomhoff made the equivalent of only nine scheduled monthly payments and was granted three separate periods of forbearance covering the remaining time. During the forbearance periods, interest accrued on the principal, but no payments were due. At the end of each forbearance period, the accrued but unpaid interest was capitalized, i.e., added to the principal pursuant to 34 C.F.R. § 682.202(b) (2004), and new repayment schedules were calculated and sent to Bomhoff.

Bomhoff's last forbearance period ended November 24, 1999. Due to capitalization of accrued but unpaid interest, her principal at that time had increased to $22,340.95. From that point forward, she paid at least the scheduled monthly amounts of $166.31 such that by January 1, 2002, the principal was reduced to $21,146.69.

Prior to January 1, 2002, all account statements mailed by Nelnet to Bomhoff contained the following language:

"Application of Payments: Payments are applied first to outstanding interest, the remainder is applied to the principal balance. The amount of interest paid in each payment varies based on your principal balance and the number of days between payments. Interest continues to accrue until your account is paid in full.

. . . .

"Prepayment: You may prepay all or part of your account at any time. UNLESS WE RECEIVE OTHER DIRECTIONS FROM YOU, any prepayment made while your account is in repayment status, will advance your payment due date. For each full monthly payment received, your payment due date will be advanced by one month. If the prepayment amount does not equal at least the amount of one full monthly payment, such additional `partial' payments will be accumulated and will advance your due date once they equal at least one full monthly payment. Payments made with this coupon will be applied only to loans showing a total amount due on this statement. By making prepayments, your loan will likely be paid off early, reducing the total interest paid on your loan. If you would like to pay your account in full, please call us for a payoff amount." (Emphasis added.)

All account statements mailed by Nelnet to Bomhoff after January 1, 2002, contained language similar to these earlier account statements:

"We calculate interest using the daily simple interest method. Interest accrues daily on your outstanding principal balance. The amount of interest that accrues on your loan(s) depends on your principal balance and the number of days between payments. We apply each payment to your principal balance only after all interest and outstanding fees are paid." (Emphasis added.)

The new account statements also contained the following:

"If you send a greater payment than is due, we will apply the additional amount to your principal balance. Unless you instruct otherwise, we will advance your due date one month for each full and partial payment received that equals one full monthly payment."

After receiving her January 3, 2002, account statement, Bomhoff made a $200 payment on January 14. Nelnet calculated the interest on the loan by multiplying the daily interest rate (8% per year / 365.25 days per year) by the outstanding principal, and then multiplying by the number of days since the previous payment. Twenty-eight days had passed since her last payment (December 17), resulting in accrued interest of $129.69. Accordingly, $129.69 was applied toward the accrued interest. Since the payment was larger than the regularly scheduled amount, a greater amount than usual ($70.31) was able to be applied toward principal. The payment reduced the outstanding principal to $21,076.38.

Similarly, the following month, on February 15, Bomhoff made a payment of $200. Thirty-two days had passed since her last payment (January 14), resulting in accrued interest of $147.72. Accordingly, $147.72 of her payment was applied toward the accrued interest, and the remaining $52.28 was applied toward the outstanding principal, leaving a balance of $21,024.10.

Bomhoff later received her March 3 account statement which confirmed "payment received since last statement" of $200 and the current principal balance of $21,024.10. It also showed estimated accrued interest of $170.37 and a scheduled payment of $185.09. Since Bomhoff had frequently been making payments greater than the required monthly amounts, pursuant to the standard language in the recent account statements it also showed an extended payment due date of June 24, 2002. It additionally showed: "Total Payment Due: $0.00."

After receiving the March 3 account statement, Bomhoff made a payment which is at the center of this appeal. She sent Nelnet a $1,000 payment along with a note which stated: "PLEASE APPLY THIS 1000 TOWARD THE PRINCIPLE [sic] ON LOAN # XXX-XX-7435." As of Nelnet's receipt of the $1,000 on March 29, 42 days had passed since her previous payment (February 15), resulting in accrued interest of $193.40. Accordingly, Nelnet applied $193.40 toward the accrued interest and the remaining $806.60 toward the principal. The payment reduced the outstanding principal to $20,217.50.

As a result of Nelnet's receipt of Bomhoff's $1,000, her April 3 account statement disclosed that the regular payment due date had again been extended — this time to November 24, 2002, — and the "Total Payment Due" was $0. It also showed a "payment received since last statement" of $1,000, a current principal balance of $20,217.50, estimated accrued interest of $115.13, and scheduled payment of $185.09.

After Bomhoff learned Nelnet had not applied the full $1,000 to principal, she filed suit on August 19, 2002. She claimed that the payments made in addition to her scheduled monthly payments were not deducted from the loan's outstanding principal but were used instead by Nelnet to extend the due dates on the next payments in order for Nelnet to wrongfully collect interest income. On February 27, 2004, the district court granted Nelnet's motion...