Teresa Chandler v. Peoples Bank & Trust Co.

Case Type:
Consumer
Case Status:
Affirmed
Citation:
No.18-5361 (6th Circuit, Apr 24,2019) Not Published
Tag(s):
Ruling:
The Sixth Circuit affirmed dismissal of claims for breach of contract and violations of the Fair Credit Reporting Act, finding that Peoples Bank did not misapply a payment to the wrong month, even though the bank's choice of application had severe negative consequences for the borrower. The Court also held that a bank does not violate the automatic stay by accepting a voluntary payment.
Procedural context:
The debtor filed her complaint against Peoples Bank & Trust Company of Hazard ("Peoples Bank") in February 2017 in the District Court for the Eastern District of Kentucky, alleging breach of a reaffirmation agreement and violation of the Fair Credit Reporting Act (FCRA). Peoples Bank filed a motion to dismiss. On the facts alleged in the complaint, the District Court found no breach of contract and no violation of the FCRA, and dismissed the case. The Sixth Circuit Court of Appeals affirmed. More specifically, the Sixth Circuit held that Peoples Bank did not violate the automatic stay by applying a voluntary payment made post-petition (the August payment) to a prepetition obligation (the bill for the July installment) because (i) the issue was raised for the first time on appeal and (ii) a creditor's acceptance of a voluntary payment does not violate the automatic stay. The breach of contract claim was dismissed because Peoples Bank correctly applied the August payment when it was made to the oldest outstanding charge - the July missed payment and nothing in the reaffirmation agreement created an obligation on Peoples Bank to reallocate the payment. Finally, the FRCA was not violated because Peoples Bank's reporting of late payments to the consumer reporting agencies was accurate.
Facts:
Debtor and her husband filed a Chapter 7 bankruptcy petition on July 30, 2013. At the time, debtor was one month behind on her payments to Peoples Bank for a loan secured by the couple's mobile home - she missed the July 2013 payment. A week later (August 8), debtor made a payment, which Peoples Bank applied to the missed July payment. The next day, Peoples Bank filed a proof of claim that did not reflect the August 8 payment. The following week, Peoples Bank generated a reaffirmation agreement, which debtor and her husband signed on August 20, and which was submitted to the bankruptcy court on September 11, 2013. Debtor believed that her August 8 payment would be applied as the first payment under the reaffirmation agreement, which was due August 7. However, Peoples Bank had already applied the August 8 payment to the missed July bill. Accordingly, debtor did not make another payment until September, which debtor understood would be applied to the September bill, but which Peoples Bank applied to the August bill. Peoples Bank also charged her a late fee for the August bill because payment was not applied until September, and reported the late payment to consumer reporting agencies (CRAs). Each successive month, debtor made a payment and Peoples Bank applied each payment to the preceding month's bill, charged late fees, and reported the late payment to the CRAs. Peoples Bank also made collection efforts due to the late payments, which debtor characterized as harassment with "calls, threats, and 'visits' to her property" which "caused her great emotional distress, anxiety, and mental distress." In March 2016, debtor and her husband sent letters to Peoples Bank and to the CRAs disputing the reported late payments. In response, Peoples Bank verified as accurate the late payment history. Debtor paid off the loan in full in June 2016. Debtor commenced this action in February 2017 alleging breach of contract and violation of the FRCA.
Judge(s):
GIBBONS, ROGERS, and STRANCH

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