Bumpers v. Cmty. Bank of N. Va.

• Decision Date: 28 August 2013
• Docket Number: No. 269PA09–2.,269PA09–2.
• Citation: 747 S.E.2d 220
• Parties: Travis T. BUMPERS and Troy Elliott, on behalf of themselves and all others similarly situated v. COMMUNITY BANK OF NORTHERN VIRGINIA.
• Court: North Carolina Supreme Court

747 S.E.2d 220

Travis T. BUMPERS and Troy Elliott, on behalf of themselves and all others similarly situated

v.COMMUNITY BANK OF NORTHERN VIRGINIA.

No. 269PA09–2.

Supreme Court of North Carolina.

Aug. 28, 2013.

On discretionary review pursuant to N.C.G.S. § 7A–31 of a unanimous decision of the Court of Appeals, 215 N.C.App. 307, 718 S.E.2d 408 (2011), affirming in part and reversing, vacating, and remanding in part orders granting partial summary judgment for plaintiffs and awarding damages entered on 28 April 2008 and 15 May 2008, both by Judge John B. Lewis, Jr. in Superior Court, Wake County. Heard in the Supreme Court on 7 January 2013.

Hartzell & Whiteman, L.L.P., Raleigh, by J. Jerome Hartzell, for plaintiff-appellees.

Ellis & Winters LLP, Raleigh, by Matthew W. Sawchak, Stephen D. Feldman, Kelly Margolis Dagger, and Meghan Skirving Thelen, for defendant-appellant.

Robinson, Bradshaw & Hinson, P.A., Charlotte, by John R. Wester and Adam K. Doerr, for NC Chamber, amicus curiae.

NC Justice Center, by Carlene McNulty, and Center for Responsible Lending, by Michael D. Calhoun, amici curiae.

North Carolina Department of Justice, by Gary R. Govert, Assistant Solicitor General, and Philip A. Lehman, Assistant Attorney General, for Roy Cooper, Attorney General, amicus curiae.

NEWBY, Justice.

In this case we explore the application of section 75–1.1 of our General Statutes, the unfair and deceptive practices statute, to the consumer loan market. First, we must decide whether an action for misrepresentation under section 75–1.1 requires reliance by a borrower who accuses a lender of collecting a fee for a discounted loan without actually charging a discounted interest rate. Second, we must determine whether section 75–1.1 imposes a price ceiling on the fees a closing services provider may charge in connection with closing a loan.

Section 75–1.1 has long encompassed conduct tantamount to fraud, which requires reliance, and we see no reason for departure from that requirement when the actions alleged include the misrepresentation of a loan transaction that caused injury. Even so, there are issues of material fact regarding whether the conduct proscribed by the first claim actually occurred in this case. Further, section 75–1.1 does not prescribe the amount of fees that may be charged in exchange for closing a loan transaction that was freely entered in the open market. Because the trial court improperly allowed summary judgment for plaintiffs on both claims which the Court of Appeals did not correctly reverse, we reverse the decision of the Court of Appeals.

In 1999 plaintiffs Travis Bumpers (Bumpers) and Troy Elliott (Elliott) obtained loans from defendant Community Bank of Northern Virginia (Community Bank). According to Bumpers, he received a mailed solicitation from Community Bank inviting him to apply for a loan. At that time he had credit card debt carrying a high interest rate, and he also wanted to perform some home improvements. Bumpers sought a loan from Community Bank, which ultimately gave him a loan with an interest rate of 16.99%. Reasoning that this interest rate was decidedly lower than the rate on his credit card debt, Bumpers borrowed $28,450.00 from Community Bank, executing a promissory note for that principal amount, which was secured by a second deed of trust on his main residence. Bumpers completed this loan transaction without first asking about the amount of the discount he was receiving or considering whether another lender would have offered better terms, though he was aware that he was free to do so.

In connection with the issuance of the loan, Bumpers paid various fees totaling $4,827.88. Community Bank charged him a total of $3,622.88, including a $1,280.25 loan discount fee, for services associated with originating the loan,¹ and Title America, LLC, a settlement agent affiliated with Community Bank, imposed the remaining fees.² Bumpers stated that he “thought the fees would be a little more” because a second mortgage places more “risk” on the bank. Further, Bumpers was not concerned with the services he received in exchange for each fee; rather, he focused only on the total amount necessary to obtain the loan. And as with the loan itself, Bumpers declined to shop around for a less expensive settlement service provider, even though he was aware that he was free to do so. Bumpers paid the fees imposed, and in September 2002 he repaid his loan.

Elliott similarly obtained a loan after receiving a mailing from Community Bank. Elliott compared the interest rates of competing institutions with that available from Community Bank. Elliott then decided to obtain a loan from Community Bank because of its lower interest rate. Ultimately, Elliott agreed to borrow $35,000.00 at an interest rate of 12.99%. In connection with that loan, Elliott paid $5,650.00 in fees, including a $1,400.00 loan discount fee to Community Bank and $1,145.00 in closing fees to Title America, LLC.³ After obtaining this loan, Elliott acknowledged, but did not exercise, his right to cancel the loan without cost.

In 2001 plaintiffs, on behalf of themselves and all those similarly situated, filed a complaint in the Superior Court, Wake County, alleging in relevant part that Community Bank's loan transactions violated North Carolina's unfair and deceptive practices statute. More specifically, plaintiffs asserted that they paid loan discount fees, but did not receive discounted loans. Plaintiffs also alleged that the fees they were charged in connection with origination of their loans were unnecessary and unreasonable. Plaintiffs contended that Community Bank's conduct amounted to a violation of section 75–1.1 of our General Statutes, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” N.C.G.S. § 75–1.1 (2011).

On 5 February 2008, plaintiffs moved for partial summary judgment against Community Bank.⁴ Arguing in support of their motion, plaintiffs first addressed their claims regarding Community Bank's loan discount fees.⁵ They argued that the HUD–1A SettlementStatements completed in connection with their loans from Community Bank show that they paid loan discount fees in excess of $1,000.00 each—$1,280.25 for Bumpers and $1,400.00 for Elliott—in addition to other loan origination fees. Plaintiffs alleged that according to the United States Department of Housing and Urban Development, which promulgates the HUD–1A form, “the term ‘loan discount’ as used in line 802 of [the HUD–1A] ... is ‘a one-time charge imposed by the lender or broker to lower the rate at which the lender or broker would otherwise offer the loan to you.’ ” Plaintiffs stated that Mary Jo Speier, President of Title America, LLC, agreed with the federal government's definition. Plaintiffs asserted that Community Bank did not, however, provide discounted loans, pointing to Community Bank's loan transmittal documents which had a checked box next to the word “no” under the heading “Buydown.” Plaintiffs maintained that this checked box showed that they did not receive discounted loans. As a result, plaintiffs contended they were entitled to summary judgment on their claims that Community Bank charged them for services it did not provide, in violation of section 75–1.1 of our General Statutes.

Second, plaintiffs also forecast evidence in support of their excessive pricing claims. Plaintiffs alleged that they paid over $1,000.00 each—$1,180.00 for Bumpers and $1,145.00 for Elliott—in closing costs to Title America, LLC. They asserted, however, that during the relevant time period the average cost in North Carolina “for an attorney to handle a second mortgage loan, including title search and ‘live closing,’ ranged between $258 and $324.” Plaintiffs averred that Community Bank's closings were quite cursory and much less involved than if conducted by attorneys. Finally, plaintiffs asserted that $400 is “the upper limit of reasonable charges for the settlement agent.” As a result, the fees charged for the closings were excessive, in violation of section 75–1.1. Plaintiffs also claimed that, though the closing fees were charged by Title America, LLC, Community Bank should be responsible because of its relationship with Title America, LLC.

Community Bank opposed plaintiffs' motion for partial summary judgment. Community Bank argued, inter alia, that plaintiffs failed to demonstrate reliance on its alleged misrepresentations that discounted loans would be provided, which Community Bank contended is required to prevail on a misrepresentation claim under section 75–1.1. Further, Community Bank responded that a statement from its former Mortgage Operations Officer, John Grace, at least created an issue of material fact regarding whether plaintiffs actually received discounted loans. Mr. Grace's statement explained that the box indicating that there was no “buy-down” actually does not address whether plaintiffs received discounted interest rates. Rather, that checked box referenced “whether the borrower obtained a temporary buy-down of the interest rate, a feature which was” inapplicable to second mortgage loans, including plaintiffs'. He concluded by stating that “[t]his section does not in any way address whether the borrower's interest rate was a discounted interest rate.” Regarding plaintiffs' excessive pricing claims, Community Bank argued that such claims were simply not actionable under section 75–1.1.

On 28 April 2008, the trial court allowed plaintiffs' motion for partial summary judgment. First addressing the loan discount claims, the trial court determined that each plaintiff paid a loan discount fee, which is a fee to reduce a loan's interest rate. Nonetheless, the trial court found that Community Bank's loan documents, which had “the ‘no’ block checked under ‘Loan buydown,’ ” showed that no discounted interest rates were given. This, according to the trial court, constituted an unfair or deceptive practice under ...