Bank of America Settles Post-Payment Interest Class Action for $29M

Bank of America has agreed to a $29 million class action settlement to resolve allegations that the bank illegally breached customers’ promissory notes by collecting post-payment interest on FHA-insured loans.

Plaintiff Veronica Dorado brought the proposed class action lawsuit on behalf of herself and other BofA customers contending that Bank of America did not comply with regulations set by the U.S. Department of Housing and Urban Development (HUD), yet still collected post-payment interest from customers.

Pursuant to HUD regulations, all notes underlying FHA-insured loans must contain certain uniform provisions. One of these provisions provides that “[i]nterest will be charged on unpaid principal” and “until the full amount of principal has been paid.”

Dorado alleges that these uniform note provisions prohibit Bank of America from collecting post payment interest or interest for the remainder of the month of payoff after the full outstanding balance of the loan has been paid. For example, for a loan that was paid off on May 10, Bank of America reportedly still charged interest until the end of May.

Further, Dorado claims that Bank of America did not comply with HUD regulations, which requires that, in response to an inquiry, request for payoff figures or tenders of prepayment, BofA must make certain disclosures regarding post-payment interest “in a form approved by the [HUD/FHA] Commissioner.”

The lawsuit alleges that the forms provided by Bank of America to customers were not approved by the HUD/FHA Commissioner.

“In short, Plaintiff contends that [Bank of America] did not comply with HUD regulations incorporated into the uniform note, and thus was not permitted to collect post-payment interest and breached the note by doing so,” court documents state.

Under the terms of the settlement, Bank of America will pay $29 million to compensate Class Members, as well as a service award up to $10,500 to Dorado for serving as the Class Representative, attorneys’ fees and expenses in the amount of $9.6 million, and settlement administration costs.

Additionally, for a period of three years, Bank of America must provide to borrowers of FHA-insured loans who make a pre-payment inquiry, request for payoff figures or tender of prepayment, a disclosure in a form that complies with HUD regulations.

According to the proposed settlement, Class Members include “any person who had an FHA-insured loan for which (i) the loan was originated between June 1, 1996 and January 20, 2015; (ii) one the Releases – as of the date the total amount due on the loan was brought to zero – was the lender, mortgagee, or otherwise held legal title to the note; (iii) one of the Releases collected interest for any period after the total amount due on the loan was brought to zero (i.e., Bank of America collected ‘post-payment interest’); and (iv) one of the Releases collected post-payment interest during the statute of limitation period applicable for the loan as shown by court documents.”

With respect to the $29 million settlement, Class Member will be divided into two groups. Approximately 81 percent of the Class Members make up Group 1.

These are Class Members who, in response to a prepayment inquiry, request for payoff figures or tender of prepayment, were sent a form that Bank of America contends contains all of the required language found on the HUD-approved form. $17 million of the $29 million settlement funds will be allocated to this group. Essentially, Class Members in this group will receive about 14 percent of their estimated recovery.

The second group, which has stronger claims, consists of Class Members who submitted an inquiry but were not sent a form but rather were sent information about post-payment interest on a form with language the lawsuit contends is different from that found in a HUD-approved form. $12 million of the settlement fund will be allocated to Group 2, or 46 percent of their recovery.

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The Class is represented by Brett M. Amron and Jeremy S. Korch of Bast Amron LLP, Steven J. Rosenwasser, Naveen Ramachandrappa and Fredric J. Bold Jr. of Bondurant Mixson & Elmore LLP, and Kevin E. Epps and Adam Hoipkemier of Epps Holloway Deloach & Hoipkemier LLC.

The Bank of America Post-Payment Interest Class Action Lawsuit is Dorado, et al. v. Bank of America NA, Case No. 1:16-cv-21147, in the U.S. District Court for the Southern District of Florida.