Consumer Finance Litigation

The Connecticut Court of Appeals recently found that the prohibition of yield spread premiums in the Dodd-Frank Act did not establish a per se violation of a fraud claim under the Connecticut Unfair Trade Practices Act ("CUTPA"). In CitiMortgage, Inc. v. Coolbeth, --- A.3d ---, 2013 WL 6448883 (Conn. Ct. App. Dec. 17, 2013), CitiMortgage filed a foreclosure action against the defendant mortgagors. The mortgagors filed special defenses and a counterclaim alleging that the mortgage broker falsely represented a higher interest rate, that CitiMortgage paid the mortgage broker a yield spread premium, and that neither CitiMortgage nor the mortgage broker disclosed the purpose of the yield spread premium. Based on these allegations, the mortgagors claimed that CitiMortgage violated the CUTPA. CitiMortgage filed a motion for summary judgment, which the lower court granted. The mortgagors appealed. On appeal, the mortgagors argued that the mortgage broker acted as CitiMortgage's agent and, thus, a genuine issue of material fact existed as to CitiMortgage's liability for fraud and unconscionability. The court noted that a party can establish a CUTPA violation by showing "an actual deceptive practice" or "a practice amounting to a violation of public policy." However, the court found that CitiMortgage sufficiently demonstrated that the mortgage broker did not act as CitiMortgage's agent. Specifically, CitiMortgage presented evidence that it did not employ the mortgage broker and that the mortgagors independently sought the mortgage broker's services. The court further determined that the mortgagor's affidavit was insufficient to establish that an agency relationship existed between CitiMortgage and the mortgage broker. The mortgagor's affidavit was based on conjecture and failed to identify how he obtained information in the affidavit. The court also noted that the mortgagors would be unable to testify that CitiMortgage paid the mortgage broker a yield spread premium for selling the mortgagors a higher interest rate. Additionally, the court found that the mortgagors failed to show that CitiMortgage's payment to the mortgage broker, which was referred to as a broker premium on the HUD-1, was a yield spread premium. Significantly, the court rejected the mortgagors' argument that the prohibition of yield spread premiums in the Dodd-Frank Act is per se evidence of fraud. See 15 U.S.C. § 1639b(c). The mortgagors asserted that the prohibition in the Dodd-Frank Act supported the proposition that yield spread premiums violated public policy and, therefore, violated the CUTPA. However, the court suggested that the provision in the Dodd-Frank Act did not apply retroactively and said that, in some cases, a yield spread premium can benefit borrowers by allowing them to pay settlement costs over the life of the loan through a higher interest rate rather than at closing. Accordingly, the court found that the mortgagors failed to create a genuine issue of material fact and affirmed the lower court's decision to grant summary judgment in favor of CitiMortgage. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.