A recent 7th Circuit decision interprets the Truth in Lending Act (TILA) as requiring mortgage servicers to credit electronic mortgage payments on the day a borrower authorizes the payment on the servicer’s website, rather than waiting until the servicer actually receives the borrower’s funds.

In this case, a servicer permitted borrowers to make mortgage payments electronically by submitting an ACH authorization form on the servicer’s website. The servicer’s website notified users that it would not credit electronic payments until two business days after the authorization was submitted. In addition, users had to check a box acknowledging that the authorization would not qualify as an immediate payment.

As a result of this policy, the servicer assessed a late fee when a borrower submitted a payment authorization one business day before her payment was due. The borrower sued the servicer for assessing the late fee and argued that the servicer should have credited her payment on the day that she submitted her electronic authorization through the website.

Regardless of the servicer’s warnings about the two business day delay, the court agreed with the borrower and found that the servicer violated the TILA’s requirement to credit mortgage payments “as of the date of receipt.” The court analogized electronic payments to payments by paper check, which must be credited when the check is received, not when the servicer later collects funds from the payor bank. Likewise, the court found that the TILA and Regulation Z require electronic payments to be credited when the electronic ACH authorization is received, not when the servicer later receives funds from the borrower’s bank.

Read the court’s opinion here.