Upcoming case: Can consumers sue mortgage lenders for unearned fees?

On February 21, the Supreme Court will hear oral arguments in Freeman v. Quicken Loans, in which the right of consumers to sue mortgage lenders for unearned fees is at stake. The question for the Supreme Court is how to interpret the Real Estate Settlement Procedures Act (RESPA), which prohibits kickbacks and other abuses in the mortgage industry. 

The borrowers argue that RESPA was intended to forbid both kickbacks and unearned fees, regardless of whether a third party was involved in the improper fee arrangement. Quicken argues that the law only prohibits lenders from receiving an unearned fee when that fee is divided with a third party and does not address unearned fees received by the lender alone.

The Fifth Circuit agreed with Quicken, ruling that there was no violation of RESPA if an unearned fee is charged by a single party and there is no third party taking a share. Circuit courts are deeply divided on this issue, with the Fourth, Fifth, Seventh and Eighth Circuits limiting RESPA to third-party kickbacks and the Second, Third and Eleventh Circuits believing that the act applies to all unearned fees.

The Court’s decision in this case will determine the lawfulness of millions of dollars in fees placed on homebuyers annually.  If the Court sides with Quicken, it will allow mortgage lenders to place unexplained and unearned fees on their loans.