780 F.3d 773
7th Cir.2015Background
- Fridman authorized an online mortgage payment to NYCB via the servicer’s website within her note’s 15-day grace period; NYCB did not post the payment for two business days and charged a late fee.
- NYCB batches consumer electronic authorizations into daily ACH files (cutoff 8:00 p.m. ET) and credits web payments two business days after submission; it disclosed this lag on its site and promises not to exceed two days even if ACH delays occur.
- Fridman sued under TILA § 1640 (and the implementing Regulation Z, 12 C.F.R. § 1026.36), arguing that an electronic authorization is a “payment instrument or other means of payment” and must be credited on the date it reaches the servicer.
- NYCB argued the relevant “date of receipt” is when funds actually reach the servicer (i.e., when the ACH transfer completes), not when the consumer authorizes the transfer on the servicer’s website.
- The district court granted summary judgment to NYCB; the Seventh Circuit reversed, holding that an electronic authorization submitted to the servicer is a means of payment and must be credited when it reaches the servicer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an online electronic authorization is a “payment instrument or other means of payment” under Regulation Z/Official Interpretations | Fridman: the electronic authorization is a payment instrument/means of payment and must be credited when it reaches the servicer | NYCB: the authorization is merely an instruction to initiate an EFT; payment occurs only when funds are received | Held: electronic authorizations on the servicer’s website qualify as a payment instrument/means of payment and must be credited when they reach the servicer |
| What the “date of receipt” means under 15 U.S.C. § 1639f(a) and 12 C.F.R. § 1026.36(c)(1) | Fridman: date of receipt is when the servicer receives the authorization (consumer’s act) | NYCB: date of receipt is when the servicer actually receives funds (completion of EFT) | Held: “date of receipt” is when the payment instrument or means of payment reaches the servicer; thus electronic authorizations must be credited upon receipt by the servicer |
| Whether the Official Interpretations’ reference to third‑party preauthorized payments controls | Fridman: that sentence refers to arrangements where the consumer authorizes a third‑party payor (bank/ bill‑pay service), not authorizations submitted directly to the servicer | NYCB: ‘‘preauthorized’’ includes consumer authorizations to the servicer, so servicer may wait for third‑party EFT/check | Held: the court interprets the sentence as applying to third‑party payors, not authorizations submitted directly to the servicer, so servicer cannot rely on it to delay crediting |
| Whether deference to the CFPB/FRB commentary requires treating the servicer’s receipt of funds as the date of receipt | Fridman: the Official Interpretations reasonably define “date of receipt” as when the payment instrument reaches the servicer | NYCB/dissent: agency commentary should not override the statutory text; payment occurs when funds arrive | Held: the Official Interpretations’ definition is not demonstrably irrational and supports crediting when the payment instrument reaches the servicer |
Key Cases Cited
- Taylor-Novotny v. Health Alliance Med. Plans, Inc., 772 F.3d 478 (7th Cir.) (standard of de novo review of legal questions)
- Hamm v. Ameriquest Mortgage Co., 506 F.3d 525 (7th Cir.) (courts generally defer to FRB commentary unless demonstrably irrational)
- Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (U.S. 1980) (discussing status of Federal Reserve commentary on Truth in Lending)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (administrative deference framework)
- Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (U.S. 1945) (deference to agency interpretation of its own regulation)