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Robey-Harcourt v. BenCorp Fin. Co., Inc.: Mortgage Broker Not Subject to Federal Lending Law

A federal appellate court has considered whether a consumer could bring a lawsuit based on the federal Truth in Lending Act ("Act") against a mortgage broker.

Carla Robey-Harcourt ("Borrower") entered a "mortgage brokerage business contract" with BenCorp Financial Company Inc ("Mortgage Broker"). In the agreement, the Mortgage Broker agreed to use "its best efforts" to obtain a mortgage loan commitment for the borrower as well as complete a credit application for the Borrower. When the Borrower did not receive the loan she sought, she brought a lawsuit against the Mortgage Broker alleging violations of the Act. The trial court determined that the Mortgage Broker was not a "creditor" and thus was not subject to the Act's terms. Thus, the court ruled in favor of the Mortgage Broker. The Borrower appealed.

The United States Court of Appeals for the Tenth Circuit affirmed the ruling of the trial court. The court looked at the Act's definition of a creditor, which states that a creditor is "a person who both (1) regularly extends...consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness...or by agreement." Regulation Z is the implementation regulation issued by the Federal Reserve for the Act, and this regulation defines a "creditor" as a "person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than 4 installments (not including a down payment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract."

The Borrower argued that the trial court improperly entered judgment in favor of the Mortgage Broker because testimony before the trial court revealed that the Mortgage Broker was not in compliance with Regulation Z. The court found this argument failed because the Mortgage Broker did not meet the statutory definition of a "creditor." Since the Mortgage Broker was simply an arranger of credit and not a creditor, the court ruled that the Act and its supporting regulations were inapplicable to the Mortgage Broker and so the Mortgage Broker's compliance with Regulation Z was irrelevant. Thus, the court affirmed the ruling of the trial court in favor of the Mortgage Broker.

Robey-Harcourt v. BenCorp Fin. Co., Inc., 326 F.3d 1140 (10th Cir. 2003).