Sunday Gazette-Mail (December 28, 2008)
Borrowers to get holiday bonus
National City Mortgage will pay legal penalty
CHARLESTON, W.Va. -- About 3,000 West Virginians will soon get a check from National City Mortgage, as part of a settlement of a class-action lawsuit against the Ohio-based lender.
On Dec. 19, National City Mortgage agreed to pay 2,859 of its West Virginia customers for allegedly refusing to credit a partial payment or charging more than one late fee for the same late payment.
National City does not admit guilt in the settlement, but the company has agreed to pay a penalty of $700,000, including $151 for each refused payment or duplicate late fee.
More than 60 customers with multiple infractions will receive at least $1,000.
"National City will not be doing those things in the future in West Virginia," said lawyer John Barrett of Charleston law firm Bailey and Glasser.
The 2007 suit accuses National City of failing to credit payments and charging illegal late fees, as well as "harassing and abusive debt collection practices."
The settlement became final earlier this month in the U.S. District Court in Charleston, in a hearing before Judge John Copenhaver.
According to the West Virginia Consumer and Credit Protection Act, a lender must credit any amount a borrower pays on a mortgage. Under the same act, a company may charge only one late fee for a late payment.
"West Virginia law is specific on these points," Barrett said.
The National City settlement joins a list of similar West Virginia settlements of lawsuits against national mortgage companies.
Since 2004, Charleston public interest law firm Mountain State Justice has won settlements of lawsuits against six major mortgage servicers. In every case, said attorney Bren Pomponio, the companies were refusing to credit payments and charging illegal late fees, among other things.
"That may sound like a small thing," he said, "but, especially for somebody on limited income, it can lead to foreclosure proceedings."
In September, National City attorneys moved to dismiss the lawsuit, arguing that federal law trumps West Virginia law, and their actions were legal under federal law, which is less stringent.
"Congress specifically enacted protections to ensure that national banking associations could, free from state intrusion, engage in 'all such incidental powers as shall be necessary to carry on the business of banking,'" National City attorneys wrote.
But National City management elected to settle the case.
Duplicate late fees will be erased, Barrett said. Un-credited partial payments are harder to remedy, he said, "because they can throw a person into foreclosure."
Aggressive, rude calls
The lawsuit was filed in June 2007 on behalf of Charleston resident James Muhammad and 2,858 other West Virginians "to prevent [National City] from needlessly and illegally placing their home loans into default and possible foreclosure," according to the legal complaint.
"I am very relieved that this case is settled," said Muhammad, who is program director for West Virginia Public Radio. "I have never sued anybody before in my life."
"James Muhammad gave people he didn't know a real gift by standing up for his rights," Barrett said.
"It began as a small issue for me, but it became clear to me that these practices were leading to very serious problems for other people," Muhammad said. "And I just thought, well, if somebody doesn't do something, it will just keep happening.
"This whole thing did start in a pretty ordinary way," he said. In early October 2005, he mailed his monthly payment to National City Mortgage. "I grabbed the wrong coupon," he said.
National City told Muhammad they would not credit his payment because it was $28.48 short.
So he mailed them the $28.48, along with the next month's payment, according to the legal complaint.
"I had made a simple mistake. I corrected it. I thought that would be the end of it," he said.
But National City Mortgage mailed his original payment back, according to the legal complaint, and declared him in default.
He began to receive "daily, aggressive, rude phone calls" from National City at home, he said.
He made all subsequent payments on time, the suit says, but the company still charged him a new late fee each month for more than a year.
He tried repeatedly to straighten it out, he said, "but they were very aggressive and difficult to deal with. You'd say you sent them money, and they'd say they didn't have it. But after you produced a canceled check, they'd say, 'Oh, we found it!'
"National City is not the only company that refuses to credit payments or charges unnecessary fees," Barrett said, "but you will not find local West Virginia banks doing this kind of thing. It's always an out-of-state lender."
West Virginia-chartered banks are governed primarily by stricter state law.
Refusal to credit payments involves hundreds of dollars, but the late fee is only about $15, Barrett said. But when it is multiplied by thousands, sometimes tens of thousands, it can amount to considerable money for the company, he said.
"These unnecessary fees are not often challenged because the amounts involved are not high. Really, this case is a great illustration of why class actions are so important to consumers when you have high-volume, low-dollar illegalities."
Muhammad said he has read the legal issues involved, "but the thing that disturbed me most was the level of disrespect the company showed their clients. I thought, OK, I'm just not going to take this.
"The odd thing is, a simple apology on a piece of paper would have done it for me," he said. "I always wanted to believe you could resolve most issues out of court with a company."
National City's attorney in Charleston - Bryant Spann at Allen Guthrie McHugh & Thomas - said the company declined to comment for this story.
National City Mortgage's decision to settle may have been influenced by the fact that the company is also contending with other lawsuits, including suits from its own stockholders who allege that company management misled them about the extent of the company's sub-prime mortgage problems.
In the past year, the company has cut dividends by almost half, shut down its wholesale business and laid off at least 1,700 employees, according to filings in the stockholder suits.
Reach Kate Long at http://wvgazette.com/News/contact/xngrybat jitnmrggr pbz return=/News/200812270660 or 304-348-1798