Are payments made late to a federally regulated lender applied in the order they are due or to the nearest installment if the loan was arranged by a broker?

Facts: A borrower obtained a purchase-assist loan arranged by a California licensed broker and originated by a federally regulated lender. The borrower missed a payment and was assessed a late fee following a grace period. The borrower made the following payments within 10 days of the subsequent due dates, which were applied retroactively to the prior months’ missed payment. As a result, each monthly payment was considered late, incurring a late fee.  

Claim: The owner sought money damages, claiming the lender breached the loan contract since the payments were not applied to the installments due within 10 days of the payment as required of a loan arranged by a broker.

Counter claim: The lender claimed the loan contract had not been breached since payments were applied in the order they were due, as required of a federally regulated lender.

Holding: A California Court of Appeals held the loan contract was not breached since the lender was federally regulated and thus payments were to be applied in the order they were due. [Akopyan v. Wells Fargo Home Mortgage Inc. (2013) __ CA4th __]

Editor’s note— Under California state law governing loans arranged by brokers, payments made within 10 days of a due date installment are applied towards that installment. [Calif. Civil Code §10242.5]

However, the lender servicing the loan was federally regulated. Under federal law, payments are applied in the order they are due, and are thus applied to missed payments first. Had the lender been state regulated, the California law would have applied. However, as the lender was federally regulated, the federal law controlled. [12 United States Code §1 et seq.]