In an appeal that garnered significant attention from consumer groups who filed briefs as amici curiae, the Supreme Court of Pennsylvania recently held that any entity that charges excessive attorney’s fees in connection with a foreclosure may be liable for treble damages, fines, and attorney’s fees under the Pennsylvania Loan Interest Protection Law.

A copy of the opinion is available at:  Link to Opinion.

The borrower entered into a residential mortgage in 2002, and later defaulted.  In the foreclosure proceedings that followed, the mortgagee’s counsel took several actions on the mortgagee’s behalf. The parties eventually entered into a loan modification agreement.

The plaintiff then filed a putative class action against the mortgagee’s counsel alleging violation of the Pennsylvania Loan Interest Protection Law (PLIPL or “Act 6”) by supposedly charging excessive attorney’s fees.  The trial court granted the mortgagee’s counsel’s motion to dismiss finding that their conduct as a debt collector was governed by the Pennsylvania Fair Credit Extension Uniformity Act (PFCEUA).  The trial court also held that, because Section 406 of Act 6/PLIPL refers only to residential mortgage lenders, any violation of that provision does not give rise to a remedy against a law firm under Section 502 of Act 6/PLIPL.

The borrower appealed and a divided panel of the appellate court affirmed, holding that because the plain language of Act 6/PLIPL regulates only the conduct of residential mortgage lenders, Section 502 of Act 6/PLIPL does not authorize an action against a mortgagee’s counsel for a violation of Section 406 of the statute. The majority reasoned that, had the legislature intended Section 406 to reach law firms acting on behalf of residential mortgage lenders, it would have used express language to that effect in the text.

The Supreme Court of Pennsylvania granted appeal, consolidating the matter with another that raised the same issue.

As you may recall, Act 6 in relevant part limits the attorney’s fees that a “residential mortgage lender shall contract for or receive . . . from a residential mortgage debtor.” 41 P.S. §406. As a remedy for a violation of Act 6’s protective provisions, Section 502 permits recovery of treble damages “in a suit at law against the person who has collected such excess interest or charges.” Id. §502. “Person” is defined as “an individual, corporation, business trust, estate trust, partnership or association or any other legal entity, and shall include but not be limited to residential mortgage lenders.” Id. §101.

The issue was whether Section 502 of Act 6/PLIPL provides a remedy against any “person” who has collected unlawful attorney’s fees, or whether its reach, in this respect, was limited to residential mortgage lenders.

The borrower contended that the mortgagee’s counsel’s conduct was actionable because the law firm was a person that collected illegal fees in connection with its representation of the residential mortgage lender in foreclosure proceedings. The borrower further argued that, under the law firm’s reading of the statute, a mortgagee’s use of a surrogate (i.e. their counsel) would render any violation of Section 406 irremediable, and that this result could not have been the Legislature’s intent.

The Supreme Court of Pennsylvania first looked to the arguments raised by the consumer groups as amici curiae.  The consumer groups argued that, under the lower courts’ narrow interpretation, the prohibitions of Act 6/PLIPL would be too easily evaded by residential mortgage lenders who hire attorneys and other third parties to conduct debt collection and foreclosures. Therefore, the consumer groups argued, the provisions of Act 6/PLIPL must be construed broadly to effectively prevent harmful practices that the Legislature intended.

The Supreme Court held that the plain and explicit terms of the statute permit “[a] person who has . . . paid charges prohibited or in excess of those allowed by this act” to recover treble damages “in a suit at law against the person who has collected such excess . . . charges.” 41 P.S. §502. The Court noted that the Legislature expressly defined “person” to “include but not be limited to residential mortgage lenders.” Id. §101. Therefore, the Court concluded, Section 406 restricts the circumstances under which residential mortgage lenders may contract for or receive fees, while Section 502 provides a broad remedy against anyone who has collected such fees.

The Pennsylvania Supreme Court also noted that the Legislature created strong remedies and penalties to enforce protective provisions of the statute. The Court found that the Legislature’s use of the term “person” in Section 502, which it defined to include actors other than residential mortgage lenders, suggests an intent to hold accountable any of the entities that might have engaged in the abusive practices specifically prohibited in Article IV.

The Supreme Court found that the lower courts’ holdings disregarded the important principle of statutory construction that, when a statute’s terms are plain, the courts are bound to enforce them.

Furthermore, the law firm argued that the Legislature would not have impliedly created liability for attorneys in Act 6/PLIPL, while expressly exempting them from such liability in the PFCEUA. The Supreme Court rejected this argument, noting that there are many interrelating protections contained in state and federal regulatory statues, particularly those governing consumer affairs, and that conduct that is omitted from one regulatory framework may still violate another.

Thus, the Supreme Court of Pennsylvania held that a borrower may recover under Section 502 of the Pennsylvania Loan Interest Protection Law from any entity, not solely the residential mortgage lender, that collects excessive attorney’s fees in connection with a foreclosure.

Accordingly, the Supreme Court reversed the orders of the lower courts.