Elena Fridman v. NYCB Mortgage Company LLC

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 14-2220

ELENA FRIDMAN, individually and on

behalf of a class,

Plaintiff-Appellant,

v.

NYCB MORTGAGE CO., LLC,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 13 C 03094 — Sara L. Ellis, Judge.

____________________

ARGUED NOVEMBER 3, 2014 — DECIDED MARCH 11, 2015

____________________

Before WOOD, Chief Judge, and EASTERBROOK and

HAMILTON, Circuit Judges.

WOOD, Chief Judge. Like many consumers today, Elena

Fridman paid her mortgage electronically, using the online

payment system on the website of her mortgage servicer,

NYCB Mortgage Company, LLC. By furnishing the required

information and clicking on the required spot, she author-

ized NYCB to collect funds from her Bank of America ac-

2 No. 14-2220

count. The question before us concerns the time when NYCB

received one of her payments. Although Fridman filled out

the form within the grace period allowed by her note, NYCB

did not credit her payment for two business days. This delay

caused Fridman to incur a late fee. Believing that her pay-

ment should not have been treated as late, Fridman brought

this suit in the district court on behalf of herself and a puta-

tive class. She alleged that NYCB’s practice of not crediting

online payments on the day that the consumer authorizes

them violates the Truth in Lending Act (TILA), 15 U.S.C.

§ 1601 et seq. The district court read the law differently and

granted NYCB’s motion for summary judgment. Fridman

appealed, and we now reverse the district court’s order and

remand for further proceedings.

I

Like a great many financial institutions, NYCB accepts

mortgage payments through its website, http://www.

mynycb.com, as well as through mail, telephone, and wire

transfer. A consumer whose personal bank account is not

with NYCB makes an online payment by signing on to her

NYCB loan account and providing the routing and account

numbers for her external bank account. Next, the consumer

electronically authorizes NYCB to debit her bank account by

clicking a “submit payment” button. NYCB withdraws

funds from the consumer’s account through the Electronic

Payments Network (EPN), which is an Automated Clearing

House (ACH). Each business day, NYCB compiles electronic

authorizations into an ACH file. The next day, it uses that file

to request the transfer of funds from its consumers’ banks

through the EPN. Consumer electronic authorizations sub-

mitted before 8:00 p.m. Eastern Time on a business day are

No. 14-2220 3

included in that day’s ACH file, while authorizations sub-

mitted after that time are placed in the next business day’s

file. NYCB credits payments made through its website two

business days after an electronic payment is submitted. (The

company notifies its consumers of this lag time on the elec-

tronic-authorization webpage.) NYCB’s rationale for the de-

lay is that two business days represents “the earliest NYCB

can receive the electronic funds transfer through the ACH

network from its consumers’ banks.” It does not, however,

make consumers wait longer than two days for a payment to

be credited, even if a problem with the ACH processing sys-

tem causes a delay in NYCB’s actual receipt of the funds.

NYCB services Fridman’s mortgage. The mortgage re-

quires payment on the first day of each month, with a 15-day

grace period before she must pay a late fee. In December

2012, Fridman used NYCB’s website to authorize NYCB to

transfer funds electronically from her Bank of America

checking account. Fridman completed the electronic author-

ization on either the evening of Thursday, December 13, 2012

(after the 8:00 p.m. cutoff time), or the morning of Friday,

December 14, 2012. In keeping with its policy, NYCB did not

credit Fridman’s mortgage account until Tuesday, December

18, 2012, two business days later, and three days after the

expiration of the grace period. (This was also the day that

Fridman’s Bank of America account was debited.) NYCB

charged Fridman a late fee of $88.54.

Fridman brought this lawsuit under TILA’s civil liability

provision, 15 U.S.C. § 1640. She asserted that TILA requires

mortgage servicers to credit electronic payments on the day

of the authorization. NYCB persuaded the district court that

the relevant time under the statute for crediting such a pay-

4 No. 14-2220

ment is when the mortgage servicer receives the funds from

the consumer’s external bank account. Whether that is cor-

rect is the sole issue on appeal. As nothing but questions of

law are presented, our review is de novo. Taylor-Novotny v.

Health Alliance Med. Plans, Inc., 772 F.3d 478, 488 (7th Cir.

2014).

II

TILA generally requires mortgage servicers to credit

payments to consumer accounts “as of the date of receipt” of

payment, unless delayed crediting has no effect on either

late fees or consumers’ credit reports. 15 U.S.C. § 1639f(a).

This provision’s implementing regulation, known as Regula-

tion Z, essentially repeats this requirement. See 12 C.F.R.

§ 1026.36(c)(1)(i) (“No servicer shall fail to credit a periodic

payment to the consumer's loan account as of the date of re-

ceipt … .”). But what is the date of receipt? That question, on

which the result in this case turns, is more complicated than

one might think. The Consumer Financial Protection Bu-

reau’s (CFPB) Official Interpretations of Regulation Z (“Offi-

cial Interpretations”) define the term “date of receipt” as fol-

lows:

1. Crediting of payments. Under

§ 1026.36(c)(1)(i), a mortgage servicer must

credit a payment to a consumer’s loan account

as of the date of receipt.

…

3. Date of receipt. The “date of receipt” is the

date that the payment instrument or other

means of payment reaches the mortgage ser-

vicer. For example, payment by check is re-

No. 14-2220 5

ceived when the mortgage servicer receives it,

not when the funds are collected. If the con-

sumer elects to have payment made by a third-

party payor such as a financial institution,

through a preauthorized payment or telephone

bill-payment arrangement, payment is received

when the mortgage servicer receives the third-

party payor’s check or other transfer medium,

such as an electronic fund transfer.

Official Interpretations, 12 C.F.R. pt. 1026, Supp. I, pt. 3, at

§ 1026.36(c)(1)(i).

That is what the CFPB thinks, but the first question we

must address is what weight we should give to its views.

The Official Interpretations for Regulation Z were adopted

in wholesale form, minus a few technical changes, from the

Federal Reserve Board (FRB) Staff Commentary (also known

as the “Official Staff Interpretations”) on Regulation Z. See

Truth in Lending (Regulation Z), 76 Fed. Reg. 79,768-01 (Dec.

22, 2011). (Before the CFPB assumed responsibility for Regu-

lation Z, the Federal Reserve Board was charged with this

task.) Courts gave deference to the FRB Staff Commentary

on Regulation Z unless the opinion was “demonstrably irra-

tional.” See Hamm v. Ameriquest Mortgage Co., 506 F.3d 525,

528 (7th Cir. 2007) (quoting Ford Motor Credit Co. v. Milhollin,

444 U.S. 555, 565 (1980)). The Federal Reserve, however, did

not use the formal notice-and-comment procedure before

issuing its interpretations, while the CFPB has that authority.

We acknowledge that future CFPB Official Interpretations

adopted pursuant to notice-and-comment rulemaking may

merit deference under the framework set forth in Chevron,

U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

6 No. 14-2220

837 (1984). The CFPB itself seems to contemplate that its Of-

ficial Interpretations are a more authoritative source than the

FRB Staff Commentary that preceded them. Compare 12

C.F.R. pt. 1026, Supp. I, pt. 1, at Introduction (“This com-

mentary is the vehicle by which the Bureau of Consumer Fi-

nancial Protection issues official interpretations of Regulation

Z.”) (emphasis added), with 12 C.F.R. pt. 226, Supp. I, at In-

troduction (“This commentary is the vehicle by which the

staff of the Division of Consumer and Community Affairs of the

Federal Reserve Board issues official staff interpretations of

Regulation Z.”) (emphasis added). Nevertheless, for present

purposes it is enough to say that the CFPB’s Official Inter-

pretation of section 1026.36(c)(1)(i) of Regulation Z, which

was transferred from the FRB’s Staff Commentary on that

section, is not “demonstrably irrational.” TILA expressly re-

quires servicers to “credit a payment … as of the date of re-

ceipt,” and the Official Interpretations define the “date of

receipt” as when the “payment instrument or other means of

payment reaches the mortgage servicer.” (Emphasis added.)

This definition is far from irrational. While the CFPB (and

the FRB before it) could have determined that “payment”

means the receipt of funds by the servicer, the conclusion that

“payment” refers to the consumer’s act of making a payment

is equally sensible.

The definition is not limited to one type of payment in-

strument versus another type. It instead covers all instru-

ments used to effect payment, and then it specifies that no

matter what the means of payment, the relevant date of re-

ceipt is the day when the payment mechanism reaches the

mortgage servicer, not any later potentially relevant time.

With this much established, we are left with the question

No. 14-2220 7

how electronic authorizations fit into the statutory and regu-

latory system. Fridman argues that an electronic authoriza-

tion of payment, such as the authorization she gave when

she filled out NYCB’s online form, qualifies as a “payment

instrument or other means of payment.” In NYCB’s view,

the electronic authorization was not a means of payment at

all; NYCB contends that it was only the consumer’s initiation

of a process in which NYCB would ask her external bank to

make a payment. NYCB then reasons that the transfer of

funds from the external bank to itself is the relevant “pay-

ment instrument,” and the “date of receipt” is thus the date

that the funds reach it (the servicer).

In order to decide whose interpretation is more true to

Regulation Z, we must turn to its language and that of the

Official Interpretations. Neither one defines the term “pay-

ment instrument or other means of payment,” but the addi-

tion of the “other means” language tells us that it is broad.

Electronic authorizations, which are an increasingly com-

mon way to pay not only mortgage payments but also a

wide variety of other bills, easily fit within it. Moreover, sev-

eral other statutes define the phrase “payment instrument”

in a way that indicates that electronic authorizations are in-

cluded. The Dodd-Frank Wall Street Reform and Consumer

Protection Act explains that a “payment instrument” is “a

check, draft, warrant, money order, traveler’s check, electron-

ic instrument, or other instrument, payment of funds, or

monetary value (other than currency).” 12 U.S.C. § 5481(18)

(emphasis added).

Several states have similar definitions for the phrase. See,

e.g., KAN. STAT. ANN. § 9-508(j) (“any electronic or written

8 No. 14-2220

check, draft, money order, travelers check or other electronic

or written instrument or order for the transmission or payment of

money, sold or issued to one or more persons, whether or not

such instrument is negotiable”) (emphasis added); MICH.

COMP. LAWS ANN. § 487.1003(e) (“any electronic or written

check, draft, money order, travelers check, or other wire, elec-

tronic, or written instrument or order for the transmission or

payment of money, sold or issued to 1 or more persons,

whether or not the instrument is negotiable”) (emphasis

added). While these provisions are not dispositive, they nev-

ertheless are helpful as an indicator of the common under-

standing of an undefined term. See Sanders v. Jackson, 209

F.3d 998, 1000 (7th Cir. 2000) (“Another guide to interpreta-

tion is found in the construction of similar terms in other

statutes.”). And the phrase in the Official Interpretations

(“payment instrument or other means of payment”) is even

more expansive than the wording of these statutes (which

define merely “payment instrument”), lending further sup-

port to the conclusion that electronic authorizations are en-

compassed within the term. The Uniform Commercial Code

gives us no reason to think otherwise: it does not contain a

definition of either “payment instrument” or “means of

payment.” While Article 4A of the Code—which governs

funds transfers—discusses “payment orders,” it does not

clearly specify whether electronic authorizations such as

Fridman’s would be classified as such an order, nor does it

hint at whether we should view a “payment order” as anal-

ogous to a “payment instrument or other means of pay-

ment.” See U.C.C. § 4A-103–104.

NYCB calls our attention to certain differences between

electronic authorizations and checks: for example, paper

No. 14-2220 9

checks, unlike electronic authorizations, contain words of

negotiability and the signature of the drawer. That would be

a telling point if the definition we are considering were lim-

ited to negotiable instruments or it required a physical signa-

ture. But it does not. And checks are only an example of de-

vices that qualify as a “payment instrument or other means

of payment,” an open-ended set. NYCB also argues that elec-

tronic authorizations are merely the first step of an electronic

fund transfer (EFT). It urges that the EFT is not complete—

and the payment does not “reach” NYCB as required by the

Official Interpretations—until the requested funds are trans-

ferred from the consumer’s external bank account to the

mortgage servicer. This means, in NYCB’s view, that the

EFT, not the electronic authorization, is the “payment in-

strument or other means of payment.”

The problem with that reasoning is that the same is true

of a paper check, which the Official Interpretations specifi-

cally include in the definition of “payment instrument or

other means of payment.” Paper checks must be credited

when received by the mortgage servicer, not when the ser-

vicer acquires the funds. Just like an electronic authorization,

a check is in a sense “incomplete” when the mortgage ser-

vicer receives it. It is nothing more or less than the consum-

er’s written permission to the payee to take another step—

that is, to draw funds from the consumer’s account—just like

the electronic submission Fridman tendered. The servicer

does not instantaneously have the funds promised by a pa-

per check. It must use the banking system to have the funds

transferred to it—a process that takes at least one or two

days. If a check must be credited on the date of physical re-

ceipt, even though the recipient does not receive the funds

10 No. 14-2220

that day and must take further steps to acquire them, then

there is no reason why a mortgage servicer should not face a

comparable process when it receives an electronic “check” or

authorization to draw funds from the consumer’s bank ac-

count.

NYCB’s last argument, which may be its most serious

one, focuses on the final line of Official Interpretations: “If

the consumer elects to have payment made by a third-party

payor such as a financial institution, through a preauthorized

payment or telephone bill-payment arrangement, payment is

received when the mortgage servicer receives the third-party

payor’s check or other transfer medium, such as an electron-

ic fund transfer.” § 1026.36(c)(1)(i) (emphasis added). NYCB

urges that the word “preauthorized” should be read to refer

to the authorization that the consumer gives to her mortgage

servicer so that the servicer can remove funds from her ex-

ternal bank account. Following that logic, NYCB argues,

Fridman “preauthorized” NYCB to extract money from her

Bank of America account at the moment she filled out

NYCB’s online form. If that was indeed the preauthorization

to which the Official Interpretations refer, then the consumer

would have elected to have payment made by a third-party

payor pursuant to that authorization, and NYCB would be

entitled to take the position that payment is received only

when it receives the third-party’s check or other transfer

medium. In short, if NYCB’s interpretation is correct, it was

within its rights to refuse to credit Fridman’s payment until

it received the EFT (or a check) from Bank of America.

Fridman counters that NYCB’s reading of the Official In-

terpretations is a strained one, not least because it drives a

No. 14-2220 11

wedge between paper checks and electronic checks. She ar-

gues that the phrase “through a preauthorized payment or

telephone bill-payment arrangement” refers to an arrange-

ment with a third party, not with NYCB itself. (For one

thing, to refer to her authorization of NYCB to conduct one

particular transaction as “pre”-authorization is somewhat

odd.) Many financial institutions now offer automatic bill

payment systems. Under those systems, the consumer ar-

ranges with her bank or other financial institution (the third-

party payor) to authorize that institution in advance to pay

the creditor (here, the mortgage servicer) at regularly occur-

ring intervals. Services that allow consumers to authorize the

bank to pay regularly occurring bills every month, unless

and until the consumer cancels that arrangement, are wide-

spread. Many banks provide automatic bill payment ser-

vices, which permit the consumer to list bills to be paid, fur-

nish addresses of creditors, specify how much will be paid,

and so on. Consumers can also use third-party services,

through which consumers grant access to their bank or cred-

it card accounts so that the services can automatically pay

their recurring bills.

We think that the more natural reading of the Official In-

terpretations is the one under which the reference to “preau-

thorized payments” addresses advance authorization with

third parties, not authorizations for the mortgage servicer

itself to collect the specific payment being made. If a con-

sumer arranges with either her bank or a bill payment ser-

vice to provide regular monthly payments to the mortgage

servicer, then the servicer is entitled to credit the consumer’s

account only when it receives the check or EFT from that

third-party payor. In such a situation, the servicer has no

12 No. 14-2220

control over the time when the consumer instructs the third-

party payor to initiate the payment process, and so it is en-

tirely reasonable to allow the servicer to wait for the arrival

of the check or EFT.

The interpretation we adopt promotes an important pur-

pose of TILA: to protect consumers against unwarranted de-

lay by mortgage servicers. When a consumer interacts direct-

ly with a mortgage servicer (such as by delivering a check,

personally paying by telephone, or filling out an electronic

authorization form on a servicer’s website), it is the servicer

that decides how quickly to collect that payment through the

banking system. Nothing dictates when the servicer must

deposit the check, use the payment information given over

the phone to receive payment, or place the electronic author-

ization information in an ACH file and collect the funds

through the EPN. The servicer is in control of the timing,

and without the directive to credit the payment instrument

when it reaches the servicer, the servicer could decide to col-

lect payment through a slower method in order to rack up

late fees. In contrast, when a consumer interacts directly

with a third-party payor to deliver payment at a set time in

the future (such as through automatic bill payment services

or third-party bill payment companies), the speed of the de-

livery of those payments is up to the third-party payor.

There is no opportunity for the servicer to delay, and thus no

potential strategic behavior to address. The servicer simply

credits the third-party payor’s payment when the servicer

receives it, as directed by the last sentence of Official Inter-

pretations § 1026.36(c)(1)(i).

No. 14-2220 13

The opportunity (and perhaps even incentive) to delay

the crediting of accounts explains TILA’s “date of receipt”

requirement. Reading TILA to require mortgage servicers to

credit electronic authorizations when they are received pro-

tects consumers from this unwarranted—and possibly limit-

less—delay. At oral argument, NYCB recognized this risk,

but it argued that consumers are already adequately protect-

ed against it. It represented that it is required to batch elec-

tronic authorizations into an ACH file and request funds

each business day. Moreover, it asserted that it is not al-

lowed to charge late fees if a crash in the electronic payment

network system causes a delay in the receipt of funds from

consumers’ bank accounts. But it is far from clear that NYCB

or any other mortgage servicer is required by law to take

these actions; NYCB pointed to no statute or regulation that

unambiguously imposes this burden on servicers. Only

TILA’s requirement that servicers credit electronic authori-

zations when they are received provides legal assurance that

consumers are not injured by delays that are out of their

hands.

III

We conclude, therefore, that an electronic authorization

for a mortgage payment entered on the mortgage servicer’s

website is a “payment instrument or other means of pay-

ment.” TILA requires mortgage services to credit these au-

thorizations when they “reach[] the mortgage servicer.” Be-

cause NYCB did not credit Fridman’s account when her au-

thorization reached it, it was not entitled to summary judg-

ment. We therefore REVERSE the judgment of the district

14 No. 14-2220

court and REMAND the case for further proceedings con-

sistent with this opinion.

No. 14-2220 15

EASTERBROOK, Circuit Judge, dissenting. Elena Fridman

had a mortgage loan from NYCB. Payments were due by the

first of each month. On December 14, 2014, or 14 days late,

Fridman used NYCB’s web site to request payment from her

checking account at Bank of America through Electronic

Payment Network, an automated clearing house (ACH).

That process usually takes two business days. NYCB told

Fridman that her payment would be credited on December

18, two business days hence. (December 14 was a Friday.)

Fridman acknowledged this timing, and her payment was

posted on December 18. NYCB added a late fee, and in this

litigation Fridman maintains that the fee violates 15 U.S.C.

§1639f(a).

Section 1639f(a) provides: “In connection with a consum-

er credit transaction secured by a consumer’s principal

dwelling, no servicer shall fail to credit a payment to the

consumer’s loan account as of the date of receipt, except

when a delay in crediting does not result in any charge to

the consumer or in the reporting of negative information to a

consumer reporting agency”. (A “servicer” is the entity re-

sponsible for collecting the debt. NYCB handles its own col-

lections and is a “servicer” under the statute.)

NYCB did not receive a “payment” by the end of its 15-

day grace period. What happened on December 14 was not

“payment” but an electronic instruction directing NYCB to

request a transfer from Bank of America (and authorizing

Bank of America to remit). Money did not reach NYCB until

December 18. On this all agree. Nonetheless, Fridman main-

tains, the instruction of December 14 should be treated as

equivalent to a payment—and, although no statute requires

lenders to have grace periods, Fridman wants to combine

16 No. 14-2220

NYCB’s 15-day forbearance with the statutory requirement

that “payment” be credited immediately to produce a con-

clusion that the late fee is impermissible.

The statute does not define “payment.” A regulation, 12

C.F.R. §1026.36(c)(1)(i), tracks the statutory language without

adding a definition. My colleagues turn to commentary pro-

vided by the staff of the Consumer Financial Protection Bu-

reau. Yet it, too, fails to define “payment.” It does say, how-

ever, the “date of receipt” (a term in both the statute and the

regulation) is “the date that the payment instrument or other

means of payment reaches the mortgage servicer.” 12 C.F.R.

Part 1026, Supp. I, pt. 3 §1026.36(c)(1)(i) ¶3.

It is not clear to me that we owe this commentary any

deference, as opposed to the careful consideration all agen-

cies’ views receive. The Bureau receives leeway when ex-

plaining its regulations, see Ford Motor Credit Co. v. Milhollin,

444 U.S. 555 (1980) (discussing the status of commentary by

the Federal Reserve, which formerly administered the Truth

in Lending Act), but “date of receipt” is a phrase in the stat-

ute. Why should an agency that parrots a statute in a regula-

tion, as the Bureau did, get to make binding rules through

“official commentary” that did not go through notice-and-

comment rulemaking? See Gonzales v. Oregon, 546 U.S. 243,

257 (2006) (“the near equivalence of the statute and regula-

tion belies the Government’s argument for … deference”).

Especially when the statute is implemented through litiga-

tion rather than administrative adjudication? See Adams

Fruit Co. v. Barrett, 494 U.S. 638 (1990). Cf. Perez v. Mortgage

Bankers Association, No. 13–1041 (U.S. Mar. 9, 2015), slip op.

10–11 n.4 and concurring opinions. But NYCB has not relied

on Gonzales or Adams Fruit, and this court is not the right fo-

No. 14-2220 17

rum to resolve any dispute about the status of Bowles v. Sem-

inole Rock & Sand Co., 325 U.S. 410 (1945), and its successors

(including Ford Motor), so I let this pass. The question re-

mains how a payment instruction should be treated.

An instruction is not a “payment”; NYCB was not paid

until December 18. Was it a “payment instrument” such as a

check? No; it was not an “instrument” of any kind. The stat-

ute, regulation, and commentary all leave “instrument” un-

defined, and if we turn to the payments articles of the Uni-

form Commercial Code we do not find any definition equat-

ing a payment instruction routed through a clearing house

the same as a payment instrument such as a check. Article 4A

of the UCC, which covers electronic transfers, speaks of the

transaction that Fridman initiated on December 14 as a

“payment order” for a “funds transfer” and never as an “in-

strument” (a word used in the Article on checks). Similarly,

an instruction to start the process of obtaining funds from a

depositary bank does not sound like a “means of payment”;

if this procedure has a “means,” it is the entirety of the

ACH’s operation, which did not produce a payment until

NYCB received its credit on December 18.

The majority’s tour, slip op. 7–8, through state statutes

and federal opinions shows the power of electronic data-

bases. It is linguistically possible to use “instrument” as one

statute in each of Kansas and Michigan does, but this doesn’t

show that such a usage is normal (what of the other 48 states

and the UCC?; what of all the other statutes in Kansas and

Michigan?) or appropriate for this particular federal regula-

tory system. And if you look closely at the language quoted

from the Kansas and Michigan statutes, you see that they

18 No. 14-2220

contrast “orders” for the payment of money with “instru-

ments”; these are different ideas.

Because “payment,” “instrument,” and “means of pay-

ment” are not defined, my colleagues turn to another sen-

tence of the staff’s commentary:

If the consumer elects to have payment made by a third-party

payor such as a financial institution, through a preauthorized

payment or telephone bill-payment arrangement, payment is re-

ceived when the mortgage servicer receives the third-party

payor’s check or other transfer medium, such as an electronic

fund transfer.

This ought to clinch the case for NYCB, because it says that

“payment is received when the mortgage servicer receives

the third-party payor’s check or other transfer medium, such

as an electronic fund transfer.” It shows that the staff thinks

“electronic fund transfer” different from an “instrument”

and that the lender must credit the payment when it “re-

ceives the third-party payor’s … transfer medium”—when

the process is finished, not when it is initiated—which in this

case means December 18. This is why the district court

granted summary judgment in NYCB’s favor.

But my colleagues do not read the sentence this way. In-

stead they say that a third-party transfer is credited on the

date of receipt only when the payment instruction was is-

sued by the borrower directly to the third party (here, to

Bank of America). If the payment instruction is routed

through the lender or servicer, my colleagues conclude, then

this sentence of the staff commentary is irrelevant.

I don’t follow this. The staff’s language does not specify a

difference according to who receives the payment instruc-

tion. The sentence asks when the third party’s payment

No. 14-2220 19

reaches the lender. How the transaction begins is neither

here nor there. The phrase “preauthorized payments,” on

which my colleagues rely (slip op. 11–12), does not do the

trick. Whether the process starts with the lender or the bor-

rower’s bank, the payment is “preauthorized” in the sense

that the authorization precedes the credit. A customer could

authorize a payment two days, a month, or a year in ad-

vance, but all are “preauthorized.”

Now let us suppose that everything I have said is wrong,

and that the staff commentary not only trumps the statute

but also treats a payment order as an “instrument” or

“means of payment.” The best analogy for that point of view

would be to equate a payment instruction with the use of a

debit card, which might be called a “means of payment”

(though the debit card also produces an immediate transfer,

unlike the delay built into the ACH system). Is a lender re-

quired to accept a debit card, or for that matter a payment

order, on a par with cash? The statute does not say—but the

regulation does.

Section 1026.36(c)(1)(iii) says that a servicer may require

customers to pay using a menu of ways that it specifies.

Thus NYCB is entitled to reject debit and credit cards. In the

absence of a written policy specifying acceptable ways to

pay, a servicer can reject anything other than cash, money

orders, or negotiable instruments (of which checks are ex-

amples). Staff commentary on §1026.36(c)(1)(iii) at ¶3. So

NYCB need not accept as statutory (and regulatory) “pay-

ment” orders that leave it with the burden of using an ACH

to obtain funds from the customer’s bank. The regulation

recognizes, however, that a servicer may permit a method

not on its authorized list (or the staff’s default list). If it does

20 No. 14-2220

that, it may defer giving credit for as long as five days. 12

C.F.R. §1026.36(c)(1)(iii).

As far as I can see, NYCB has not put transfer via ACH

on a list of approved payments. In other words, it accepts a

payment order as a means of producing a payment, but not as

a payment. Before being allowed to enter the payment in-

struction on NYCB’s web site, Fridman had to check a box

acknowledging that a funds transfer through an ACH would

not qualify as immediate payment. This brought it within

the scope of §1026.36(c)(1)(iii) and allowed NYCB to wait as

long as five days before giving credit. NYCB credited Frid-

man’s account in two business days—indeed, promised cred-

it in two business days even if the ACH took longer. Frid-

man therefore cannot complain about the late charge.

My colleagues express concern that, if a lender need not

treat an ACH order as a statutory “payment” until it receives

the funds from the depositary bank, it may be tempted to

delay the start of the collection process in order to run up

late fees. Slip op. 12–13. That’s not a risk for NYCB, which

promises credit in two business days no matter how long the

ACH process takes. And I do not think it likely for any other

servicer. Playing games would put its reputation at risk. Us-

ers of the Internet proclaim their grievances loudly, and

many sites rate merchants based on users’ observations.

The majority’s understanding can lead to bad conse-

quences too—worse, and more likely, than the possibility

that concerns my colleagues. One thing a lender may do in

response to today’s decision is refuse to accept payment or-

ders. Then a borrower such as Fridman would either have to

write a paper check, taking all risk of delay in the mails, or

go to her own bank’s web site to cause it to make a funds

No. 14-2220 21

transfer (something that, the majority acknowledges, would

allow the lender to defer credit until the money arrives).

A second thing a lender could do would be to reduce or

eliminate grace periods. NYCB now gives its customers 15

days past the deadline to make payments without incurring

charges. Under NYCB’s procedures, a borrower who wants

to use an ACH collection must act within the first 13 of those

days to avoid a late fee. If as my colleagues hold a lender

must give the borrower credit the same day a payment order

is received, that turns 15 grace days to 17 (or 19 with week-

ends). The lender can cut the time back to 15 by reducing the

grace period to 13 or 11 days. But that’s hard to remember. A

reduction to 10, 7, or zero would be more likely. Customers

would lose.

Consequences, good or bad, are the province of Congress

and the Bureau. Our job is to interpret the statutory and reg-

ulatory language. Instead of stretching that language in a

way that may induce lenders to reduce or eliminate grace

periods, or stop facilitating ACH transfers, we should read

the statute and regulation to mean what they say: lenders

must give credit when they receive payment. NYCB gave

Fridman credit the day it received payment. It has complied

with the statute.