United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
J. Tharp, Jr. United States District Judge.
Samina Sultan claims that the defendants added over $20, 000
in “phantom financing” when she modified her
home's mortgage, causing her to make higher principal
payments and to pay additional finance charges. She sued the
lender and the loan servicer under the Truth in Lending Act,
the Illinois Consumer Fraud and Deceptive Business Practices
Act, and the Fair Debt Collection Practices Act. Both
defendants have moved to dismiss the complaint. For the
reasons explained below, the motion is granted as to the TILA
claim, but denied as to the ICFA and FDCPA claims.
Sultan owns her home in Downers Grove, Illinois. Compl.
¶ 8. On January 22, 2016, she received a letter from
Defendant Bayview Loan Servicing LLC forwarding a proposed
permanent modification of her mortgage loan (upon which she
had defaulted) with Defendant M&T Bank. Id. at
¶ 9. The cover sheet to the loan modification stated the
new unpaid principal balance of the loan was $387, 365.86.
Id. at ¶ 11. The categories comprising the
unpaid principal balance, however, added up to only $366,
065.86. Id. at ¶ 12. The inconsistency was
partially carried into the loan modification agreement
itself, where one paragraph stated that accrued charges in
the amount of $102, 687.69 had been added to the existing
(pre-modification) balance, but elsewhere the
“taxable” addition to the original unpaid balance
was listed as $119, 665.86. See Def.'s Ex. 1,
ECF No. 10-1. Sultan did not catch the error in the
arithmetic and executed the proposed permanent loan
modification on January 22, 2016. Compl. ¶ 9.
Sultan alleges the loan modification overstated her new
balance by $21, 300. Compl. ¶ 14. This “phantom
financing” resulted in her paying an additional $92.36
per month which would result in payment of $44, 332.80 in
additional finance charges over the term of the loan.
Id. at ¶ 15-16. Sultan was not provided with a
Truth in Lending Act disclosure statement, which would have
laid out the costs of her new loan. Id. at ¶
17. Sultan has experienced increased stress and anxiety as a
result of the issues with her loan. Id. at ¶
18. On September 8, 2106, Sultan filed this lawsuit against
M&T Bank as well as loan servicer Bayview Loan Servicing,
claiming violations of the Truth in Lending Act
(“TILA”), Illinois Consumer Fraud and Deceptive
Business Practices Act (“ICFA”), and the Fair
Debt Collection Practices Act (“FDCPA”). The
defendants have jointly moved to dismiss the complaint for
failure to state a claim.
survive a motion to dismiss premised on Rule 12(b)(6), Sultan
need only state claims that are plausible and raise her right
to relief above a speculative level. See Arnett v.
Webster, 658 F.3d 742, 751-52 (7th Cir. 2011). Her
claims under the FDCPA and ICFA clear this threshold, but her
effort to invoke the requirements of TILA fails because loan
modifications (as distinguished from refinancings) are not
subject to TILA's disclosure requirements.
Truth in Lending Act (“TILA”) promotes the
“informed use of credit” by requiring certain
disclosures during “the extension of consumer
credit.” 15 U.S.C. § 1601(a). By regulation, a
“refinancing” is “a new transaction
requiring new disclosures to the consumer.” 12 C.F.R.
§ 226.20(a). A refinancing occurs “when an
existing obligation that was subject to this subpart is
satisfied and replaced by a new obligation undertaken by the
same consumer.” Id. There are also several
exceptions, which are not treated as refinancing, including:
“A change in the payment schedule or a change in
collateral requirements as a result of the consumer's
default or delinquency, unless the rate is increased, or the
new amount financed exceeds the unpaid balance plus earned
finance charge and premiums for continuation of
insurance.” Id. at § 226.20(a)(4).
defendants argue that they could not have violated TILA
because the loan modification agreement (and accompanying
letter) was just a modification of an existing debt, rather
than a new extension of credit requiring new disclosures.
Sultan, they say, never satisfied the original loan
obligation. The loan modification agreement explicitly states
“[n]othing in this Modification shall be understood or
construed to be a satisfaction or release in whole or in
part” of the original note and that the note
“will remain unchanged and in full effect” with
regards to all its terms and conditions as amended by the
modification agreement. See Def.'s Ex. 1 at 2.
Sultan, on the other hand, argues that the modification falls
into the exception because her interest rate was increased
and the new balance exceeded her old one plus the accrued
charges. See Pl.'s Resp. at 4-5, ECF No. 16.
for Sultan, the commentary on the regulation explicitly
states that “[a] transaction is subject to §
226.20(a) only if it meets the general definition of a
refinancing.” 12 C.F.R. Part 226 Supp. I. Thus, Sultan can
only fit into the exception she relies on (subparagraph
(a)(4)) if she first meets the general definition of a
refinancing-that is to say, if “the original obligation
has been satisfied or extinguished and replaced by a new
obligation.” See Jackson v. Am. Loan Co., 202
F.3d 911, 913 (7th Cir. 2000) (“The rule stated by the
Commentary is that only “the cancellation of [the
original] obligation and the substitution of a new
obligation” amount to a refinancing.”). By the
terms of her agreement, Sultan's transaction with the
defendants in January 2016 did not cancel the original
obligation, and so does not constitute a refinancing. See
Rodriguez v. Chase Home Fin., LLC, No. 10 C 05876, 2011
WL 4435633, at *3 (N.D. Ill. Sept. 23, 2011) (finding loan
modification agreement is not a refinancing based on language
of the agreement); Sheppard v. GMAC Mortg. Corp. (In re
Sheppard), 299 B.R. 753, 762 (Bankr. E.D. Pa. 2003)
(“Thus, to determine whether a transaction is a
refinancing, one must first apply the definition of
refinancing in § 226.20(a) of Regulation Z and the
Official Staff Interpretations to the transaction at issue.
If the result of that analysis is that the transaction is a
refinancing, one of the five exceptions may be applicable to
except the transaction from the disclosures required of a
refinancing. However, if the transaction is found not to be a
refinancing when applying the general definition, the
exceptions are not implicated.”).
contract language Sultan points to, that the provisions of
the modification “supersede and replace any
inconsistent provisions, ” lends no help to her cause.
That language does not indicate that the previous obligation
was extinguished, only that the modifications agreed to would
govern in the event of a conflict. Indeed, if the 2016 loan
modification had extinguished the previous obligation, there
would be no need for a provision addressing how an
inconsistency with the original terms of the loan agreement
would be resolved. That inconsistencies might arise confirms,
rather than refutes, that the loan modification did not
extinguish Sultan's original obligation. For that reason,
Sultan's loan modification was not a refinancing and new
TILA disclosures were not required. The motion to dismiss the
TILA claims is therefore granted.
Bayview (the only defendant named in the FDCPA claim) claims
that the FDCPA claim is facially deficient because Sultan has
not alleged that its actions were taken “in connection
with the collection of any debt.” Def.'s Mot. at 6,
ECF No. 10. Sultan acknowledges that her complaint does not
use those exact words, but that it is a reasonable inference
that should be made considering the alleged
misrepresentations were made in a letter accompanying an
attempt to restructure the defaulted loan so she could pay