Last week the Missouri Supreme Court released two decisions on the same day that expanded Missouri's Merchandising Practices Act (MMPA) with regard to the origination and servicing of real estate mortgage loans. The effect of the decisions could impact other consumer loans and collection activities, including auto loans, other credit transactions and real estate mortgage lending/servicing.
First, the Court found that loan origination is a covered "sale" under the MMPA and continues until the last service is performed or the loan is repaid. The Court then extended MMPA coverage to loan servicers, finding that servicing is an activity "in connection with" the sale. According to the Court, the MMPA applies to loan servicers (even though they were not the originating lenders) because the term "any person" as used in the MMPA "does not contemplate a direct contractual relationship between plaintiff and defendant."
The two cases are Conway v. CitiMortgage, Inc. and Watson v. Wells Fargo Home Mortgage, Inc. The plaintiffs in Conway alleged facts asserting wrongful foreclosure and "fraud and deception" under the MMPA in the servicing of their loan including the foreclosure process. The plaintiffs in Watson presented similar allegations as in Conway and also alleged bad faith by Wells Fargo with regard to attempts to reach a loan modification.
The Court relied upon a dictionary definition of "to connect" as meaning "to have a relationship" thus broadly construing the term and the MMPA as prohibiting the use of deceptive practices "if there is a relationship between the sale … and the alleged unlawful action." The Court concluded that it would be "incongruous to limit 'in connection with' to only apply to the original parties in a transaction."
The Court overruled recent appellate decisions that had reached contrary results (State ex rel. Koster v. Professional Debt Management and State ex rel. Koster v. Portfolio Recovery Associates). However, on a second question presented in Watson, the majority found that a loan modification negotiation between the Watson and Wells Fargo could not be subjected to the MMPA because this mitigation activity was not part of the "sale" due to a restrictive term in the deed of trust. The lower court's dismissal of the claims related to the loan modification negotiation was affirmed. In light of the abrogation of Professional Debt Management and Portfolio Recovery Associates, and the reasoning in Conway and Watson, these cases will likely extend the MMPA to all consumer loans and collection activities, creating private rights of action against non-parties to the underlying transactions.
Lenders, servicers, debt buyers and debt collectors must already navigate the intricacies of the Truth in Lending Act, RESPA and the Fair Debt Collection Practices Act, as well as a plethora of other federal and state regulations. These statutes and regulations can create liability exposure even for technical deficiencies. Delinquent and defaulted borrowers now may look for these often minor errors to boot strap a cause of action as a deceptive act under the MMPA in order to claim damages, punitive damages and attorney fees under the Missouri statute.
