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Bank of America Interest Charges After Payoff Class Action

Small Bank of America Branch

Interest is owed only until a borrower has paid off a loan, correct? Or do some institutions believe that they can go on collecting interest after that day? The complaint for this class action alleges that Bank of America, NA collects post-payment interest on certain housing loans, and that it should not be doing so.

Some housing loans are insured by the Federal Housing Administration (FHA). The FHA requires that lenders making such FHA-insured loans include certain provisions in the promissory notes that govern these loans. 

The complaint sets forth some of these provisions with quotes from the FHA: “Among other things, the uniform provisions require that ‘[i]nterest will be charged on unpaid principal’ and interest charges must stop once ‘the full amount of principal has been paid.’” It adds, “The sole exception to those provisions is that lenders may collect post-payment interest for the remainder of the month in which full payment is made, but only ‘to the extent … permitted by [FHA] regulations.’”

And to what extent do the regulations permit it? According to the complaint, the lender is allowed to charge post-payment interest only if two conditions are met. First, the borrower must make the payment of the full remaining principal on a day other than the first of the month. Second, the lender must give the borrower a form approved by the FHA. This form explains to borrowers that the lender is seeking to collect post-payment interest. It explains the terms under which the lender can do this and the things the borrower can do to avoid those charges. 

The complaint claims that Bank of America does not give borrowers the FHA-approved form. Instead, the complaint says, it uses its own form, which is not FHA-approved and which does not do what the FHA-approved form does. Because of this, the complaint claims, the bank is not entitled to the post-payment interest it has collected on such loans.

The complaint alleges breach of contract or unjust enrichment.

The class for this action is any person who had a loan at any time between April 2, 1985 and January 20, 2015, (a) that was insured by the FHA, (b) that was held by Bank of America on the date on which payment of the total unpaid principal was made, and (c) for which Bank of America collected interest for any period after payment or the total unpaid principal was made.

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