A recent decision by a federal court of appeals has allowed a consumer to sue her bank under the Massachusetts consumer protection statute, Chapter 93A of the General Laws of Massachusetts, for failure to modify a home mortgage loan held by the bank, among other claims. The May 21 decision by the U.S. Court of Appeals for the First Circuit came in a case in which the consumer sought to modify the terms of her mortgage loan under the federal Home Affordable Modification Program (“HAMP”) after falling behind on scheduled payments. The consumer and the bank entered into a trial period plan (“TPP”) under HAMP guidelines, pursuant to which the consumer would become eligible for a permanent loan modification if she complied with the terms of the TPP, including making three consecutive monthly payments. The consumer made the required monthly payments under the TPP but the bank mistakenly denied the consumer a permanent loan modification, claiming that it did not receive all of the TPP payments on time. The bank eventually acknowledged the error and delivered a permanent modification agreement to the consumer several months after the expiration of the TPP, which constituted a breach of the TPP. The consumer evidently did not sign the permanent modification agreement and the bank initiated foreclosure proceedings. In its ruling, the court held that the consumer could make a claim against the bank for unfair debt collection practices under Chapter 93A for mishandling the HAMP process, among other mistakes.

Nutter Notes: At issue in this case was whether the consumer sufficiently claimed actual damages as a result of conduct in violation of Chapter 93A. The court held that the consumer’s allegations were sufficient where she claimed that, as a result of the bank’s conduct, she has suffered money damages including potential loss of equity in the home, damage to her credit rating and her ability to obtain loans or credit in the future, and an increase in interest rates she will have to pay on any existing or future loans and credit card accounts. The court’s opinion explained that Chapter 93A “provides a cause of action for a plaintiff who ‘has been injured,’ by ‘unfair or deceptive acts or practices,’” and that “[a] practice is unfair if it is within the penumbra of some common-law, statutory, or other established concept of unfairness; is immoral, unethical, oppressive, or unscrupulous; and causes substantial injury.” According to the court, violation of a statute is not a necessary element of a Chapter 93A claim, as the consumer protection law “creates new substantive rights and, in particular cases, makes conduct unlawful which was not unlawful under the common law or any prior statute.” Although in this case the court found evidence that the bank had breached a contract with the consumer, it held that liability under Chapter 93A is not precluded by the absence of a contractual breach.