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Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 

---

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 authorized NYCB to collect funds from her Bank of America acCase: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
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 payment should not have been treated as late, Fridman brought 

this suit in the district court on behalf of herself and a putative 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 submitted before 8:00 p.m. Eastern Time on a business day are 

Case: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
No. 14-2220 3

included in that day’s ACH file, while authorizations submitted 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 electronic-authorization webpage.) NYCB’s rationale for the delay 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 system causes a delay in NYCB’s actual receipt of the funds.

NYCB services Fridman’s mortgage. The mortgage requires 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 authorization 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 payCase: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
4 No. 14-2220

ment is when the mortgage servicer receives the funds from 

the consumer’s external bank account. Whether that is correct 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 Regulation 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 receipt ... .”). 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 Bureau’s (CFPB) Official Interpretations of Regulation Z (“Official Interpretations”) define the term “date of receipt” as follows: 

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 servicer. For example, payment by check is reCase: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
No. 14-2220 5

ceived when the mortgage servicer receives it, 

not when the funds are collected. If the consumer elects to have payment made by a thirdparty payor such as a financial institution, 

through a preauthorized payment or telephone 

bill-payment arrangement, payment is received 

when the mortgage servicer receives the thirdparty 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 Regulation 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 irrational.” 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. 

Case: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
6 No. 14-2220

837 (1984). The CFPB itself seems to contemplate that its Official 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 commentary is the vehicle by which the Bureau of Consumer Financial Protection issues official interpretations of Regulation 

Z.”) (emphasis added), with 12 C.F.R. pt. 226, Supp. I, at Introduction (“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 Interpretation 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 requires servicers to “credit a payment ... as of the date of receipt,” 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 instrument versus another type. It instead covers all instruments used to effect payment, and then it specifies that no 

matter what the means of payment, the relevant date of receipt 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 

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No. 14-2220 7

how electronic authorizations fit into the statutory and regulatory system. Fridman argues that an electronic authorization 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 “payment 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 “payment instrument or other means of payment,” but the addition of the “other means” language tells us that it is broad. 

Electronic authorizations, which are an increasingly common way to pay not only mortgage payments but also a 

wide variety of other bills, easily fit within it. Moreover, several other statutes define the phrase “payment instrument” 

in a way that indicates that electronic authorizations are included. 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, electronic 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 

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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, electronic, 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 nevertheless are helpful as an indicator of the common understanding of an undefined term. See Sanders v. Jackson, 209 

F.3d 998, 1000 (7th Cir. 2000) (“Another guide to interpretation 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 support to the conclusion that electronic authorizations are encompassed 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 analogous to a “payment instrument or other means of payment.” See U.C.C. § 4A-103–104.

NYCB calls our attention to certain differences between 

electronic authorizations and checks: for example, paper 

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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 limited to negotiable instruments or it required a physical signature. But it does not. And checks are only an example of devices that qualify as a “payment instrument or other means 

of payment,” an open-ended set. NYCB also argues that electronic 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 transferred 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 instrument or other means of payment.”

The problem with that reasoning is that the same is true 

of a paper check, which the Official Interpretations specifically 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 servicer acquires the funds. Just like an electronic authorization, 

a check is in a sense “incomplete” when the mortgage servicer receives it. It is nothing more or less than the consumer’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 paper 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 receipt, even though the recipient does not receive the funds 

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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 account. 

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 electronic 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 external 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 Interpretations is a strained one, not least because it drives a 

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No. 14-2220 11

wedge between paper checks and electronic checks. She argues that the phrase “through a preauthorized payment or 

telephone bill-payment arrangement” refers to an arrangement 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 arranges with her bank or other financial institution (the thirdparty payor) to authorize that institution in advance to pay 

the creditor (here, the mortgage servicer) at regularly occurring 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 widespread. Many banks provide automatic bill payment services, which permit the consumer to list bills to be paid, furnish 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 credit card accounts so that the services can automatically pay 

their recurring bills.

We think that the more natural reading of the Official Interpretations is the one under which the reference to “preauthorized payments” addresses advance authorization with 

third parties, not authorizations for the mortgage servicer 

itself to collect the specific payment being made. If a consumer arranges with either her bank or a bill payment service 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 

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12 No. 14-2220

control over the time when the consumer instructs the thirdparty payor to initiate the payment process, and so it is entirely reasonable to allow the servicer to wait for the arrival 

of the check or EFT.

The interpretation we adopt promotes an important purpose of TILA: to protect consumers against unwarranted delay by mortgage servicers. When a consumer interacts directly 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 authorization 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 collect 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 delivery 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 Interpretations § 1026.36(c)(1)(i).

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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 protects consumers from this unwarranted—and possibly limitless—delay. At oral argument, NYCB recognized this risk, 

but it argued that consumers are already adequately protected against it. It represented that it is required to batch electronic authorizations into an ACH file and request funds 

each business day. Moreover, it asserted that it is not allowed 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 authorizations 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 payment.” TILA requires mortgage services to credit these authorizations when they “reach[] the mortgage servicer.” Because NYCB did not credit Fridman’s account when her authorization reached it, it was not entitled to summary judgment. We therefore REVERSE the judgment of the district 

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14 No. 14-2220

court and REMAND the case for further proceedings consistent with this opinion. 

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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 consumer 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 responsible for collecting the debt. NYCB handles its own collections 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 maintains, 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 

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16 No. 14-2220

NYCB’s 15-day forbearance with the statutory requirement 

that “payment” be credited immediately to produce a conclusion 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 provided by the staff of the Consumer Financial Protection Bureau. Yet it, too, fails to define “payment.” It does say, however, 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 agencies’ views receive. The Bureau receives leeway when explaining 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 statute. Why should an agency that parrots a statute in a regulation, as the Bureau did, get to make binding rules through 

“official commentary” that did not go through notice-andcomment rulemaking? See Gonzales v. Oregon, 546 U.S. 243, 

257 (2006) (“the near equivalence of the statute and regulation belies the Government’s argument for ... deference”). 

Especially when the statute is implemented through litigation 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 foCase: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
No. 14-2220 17

rum to resolve any dispute about the status of Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), and its successors

(including Ford Motor), so I let this pass. The question remains 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 statute, regulation, and commentary all leave “instrument” undefined, and if we turn to the payments articles of the Uniform Commercial Code we do not find any definition equating 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 “instrument” (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 databases. 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 regulatory system. And if you look closely at the language quoted 

from the Kansas and Michigan statutes, you see that they

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18 No. 14-2220

contrast “orders” for the payment of money with “instruments”; these are different ideas.

Because “payment,” “instrument,” and “means of payment” are not defined, my colleagues turn to another sentence 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 received 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 “receives 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. Instead they say that a third-party transfer is credited on the 

date of receipt only when the payment instruction was issued 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 instruction. The sentence asks when the third party’s payment 

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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 borrower’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 advance, 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 required 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 examples). Staff commentary on §1026.36(c)(1)(iii) at ¶3. So 

NYCB need not accept as statutory (and regulatory) “payment” 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 

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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 instruction 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 Fridman’s account in two business days—indeed, promised credit in two business days even if the ACH took longer. Fridman 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. Users of the Internet proclaim their grievances loudly, and 

many sites rate merchants based on users’ observations.

The majority’s understanding can lead to bad consequences 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 orders. 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

Case: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21
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 weekends). 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 regulatory 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.

Case: 14-2220 Document: 25 Filed: 03/11/2015 Pages: 21