Second Circuit Issues Decision in Cohen v. JP Morgan Chase & Co. on Section 8 Issue

August 9, 2007

Yesterday, the Second Circuit issued its decision in Cohen v. JP Morgan Chase & Co. The district court had granted Chase's motion to dismiss in a case where Chase had charged its borrower Cohen a $225 "post-closing fee" that Cohen alleged violated RESPA Section 8(b) because no services had been provided. The district court had concluded, on the authority of Kruse v. Wells Fargo Home Mortgage Inc., 383 F.3d 49 (2nd Cir. 2004), that Cohen's claim was not covered by 8(b).

The Second Circuit reversed the lower court judgment, holding that (a) Kruse addressed mark-ups and situations where a lender provides a service but charges more than the reasonable value of the service, and Kruse concluded that applying section 8 to "overcharges" would ensnarl the courts in judicial rate regulation, but (b) this case presented a different issue than had not been presented in Kruse in that the plaintiff here was alleging that Chase had provided no services (rather than that it had overcharged for the services it did provide).

The panel goes through a Chevron analysis and concludes that Section 8 is ambiguous as to whether it prohibits charges where no services are rendered, and that it has to defer to HUD's interpretation that Section 8(b) applies in that circumstance because HUD's interpretation is reasonable.

This decision contributes further to a split in the circuits on whether 8(b) applies to a single provider charge and might prompt a petition for cert in the Supreme Court.

Please select the Related Document to view the Court's Decision.