A Bump in the Road of Consumer Protection: How Bumpers v. Community Bank of Northern Virginia Stripped Section 75-1.1 of Its Ability to Protect Borrowers

BY Rebecca A. Fiss

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North Carolina consumers gained the ability to sue for “unfair or deceptive acts or practices” in 1969, when the state adopted a model version of the Unfair Trade Practices and Consumer Protection Law promoted by the Federal Trade Commission.[1]  Eight years later, the Supreme Court of North Carolina held that the original version of the statute covered only “bargain, sale, barter, exchange[,] or traffic” in goods and thus did not reach abusive debt collection practices.[2]  The North Carolina General Assembly promptly amended the statute to broadly include “all business practices, however denominated.”[3] Since then, unfair or deceptive acts or practices (“UDAP”) claims have become a frequently used litigation tool, amounting to a “boilerplate claim” in almost every commercial or consumer transaction-based complaint in the state.[4]

Around 2007, the national swell in foreclosure rates and the resulting crash of the subprime mortgage market brought public attention to the specific consumer problem of predatory mortgage lending.[5]  State legislators around the country realized that the business structures of subprime lenders incentivized lenders to offer their products to high numbers of low-credit borrowers and to ignore existing consumer protection laws.[6]  Even before the mortgage crisis, however, North Carolina was already on the forefront of borrower protection: North Carolina passed the nation’s first state predatory lending law in 1999 and has since repeatedly expressed strong legislative intent to protect consumers in the mortgage context.[7]

Despite North Carolina’s growing repertoire of mortgage-specific statutes,[8]  some borrowers still rely on N.C. Gen. Stat. § 75-1.1,[9]  the state’s general UDAP statute, to contest unethical lending practices that slip through the cracks.[10]  To decide what types of conduct fall within the broad prohibition of section 75-1.1,[11] courts often look to the statute’s purpose.[12]  As the General Assembly articulated in the original version of section 75-1.1,

[t]he purpose of this section is to declare, and to provide civil legal means to maintain, ethical standards of dealings . . . between persons engaged in business and the consuming public within this State to the end that good faith and fair dealings between buyers and sellers at all level[s] of commerce be had in this State.[13]

The courts have expounded on that purpose, emphasizing that the statute was created because common law remedies—like fraud suits—proved insufficient to protect the interests of consumers.[14]

Because the statute was created to protect consumers from a broad range of abuses, the Supreme Court of North Carolina and consumer advocates have emphasized the importance of allowing consumers to bring actions under section 75-1.1.[15] Without the help of ground-level enforcement by individuals, state consumer protection agencies are hard-pressed to keep up with the ingenuity and volume of merchants looking for new ways to bilk consumers.[16]  However, advocates have also recognized the ability of judicial interpretation to undermine the effectiveness of UDAP statutes by making it more difficult for consumers to successfully bring suits.[17]

The Supreme Court of North Carolina has taken a large step in that direction in Bumpers v. Community Bank of Northern Virginia.[18]  In Bumpers, two borrowers alleged that the bank that provided their second mortgage loans charged them for something they never received—specifically, a “loan discount fee” without a discounted interest rate.[19]  The court of appeals affirmed summary judgment in the plaintiffs’ favor, but the supreme court reversed, holding that the plaintiffs had alleged deception and thus had to prove they had actually and reasonably relied on the bank’s “misrepresentation” that they had received a discount.[20]  The majority’s approach has two principle flaws. First, after characterizing the plaintiffs’ claims as alleging misrepresentation by the defendants, the court added an inappropriate new element to deception-based claims: consumers alleging deceptive trade practices under section 75-1.1 must now prove reasonable reliance,[21]  an element traditionally associated with fraud.[22] By demanding that consumers prove reasonable reliance, the Supreme Court of North Carolina has undermined the consumer-oriented purpose of section 75-1.1 and cleared the way for exploitation of consumers’ knowledge gaps. Second, the court failed to question whether the defendants’ alleged actions might alternatively violate the unfair trade practices prong of section 75-1.1. By failing to make this inquiry, the supreme court opened the door for defendants to escape liability for unscrupulous business practices merely by reframing a plaintiff’s claim.[23]

This Recent Development examines the Bumpers opinion and suggests an alternate approach that better protects consumers from predatory lending practices. Part I examines the court of appeals’ and supreme court’s reasoning in Bumpers. Part II explores the supreme court’s newly articulated reliance requirement—particularly the demand that consumers prove “reasonable” reliance—for misrepresentation-based UDAP claims and its possible effects on the availability of section 75-1.1 actions. Part II then proposes a reduced reliance standard for consumer actions, particularly in cases where the other contracting party has a significant advantage in knowledge and bargaining power. Part III questions why the supreme court did not consider the case under section 75-1.1’s unfairness prong and recommends that North Carolina join other jurisdictions in holding that charging consumers for services not provided is an inherently unfair business practice.

I. Bumpers Decisions and the Supreme Court’s Surprising Reversal

A. The Facts of the Case

The case involved two consumers, each of whom received and responded to mail solicitations from Community Bank of Northern Virginia (“Community Bank”) in 1999.[24]  Travis Bumpers, the primary plaintiff in the case,[25] called the toll-free number on the solicitation, submitted a loan application by phone, and faxed the necessary documents.[26]  He was then directed to a women’s lingerie shop, where he signed the closing documents in the presence of a shop employee who was a notary public.[27]  Bumpers was approved for a $28,450 loan with an interest rate of 16.99%.[28]  He paid several thousand dollars in fees to Community Bank for the loan, including a loan origination fee of $2,062.63, a “loan discount” fee of $1,280.25, and $280 in other fees.[29]  Title America, LLC (“Title America”), the company Community Bank had selected to provide the closing services for the loan, also charged Bumpers $1,205 in fees, including a settlement or closing fee, abstract or title search fee, title examination fee, overnight fee, document review fee, and processing fee.[30]  Bumpers paid a total of $4,827.88 in fees to the two businesses.[31]

The other plaintiff, Troy Elliott, received a mail solicitation advertising a 12.99% interest rate and called the 800 number to inquire.[32]  Like Bumpers, Elliott submitted a loan application by phone and faxed the necessary documents; he then went to the residence of a notary public to sign.[33]  Elliott’s loan was for $35,000 with a 12.99% interest rate.[34]  Community Bank charged him a loan origination fee of $2,800, a “loan discount” fee of $1,400, and a further $280 in other fees.[35]  Title America charged Elliott fees similar to the ones it had charged Bumpers.[36]

The plaintiffs filed a lawsuit in September 2001 against Community Bank for duplicative fees and the loan discount fee, alleging that no discount was given and charging violation of section 75-1.1 and other North Carolina statutes.[37]  Over the next few years, the lawsuit bounced between state and federal courts, meeting at times with a national class-action lawsuit against Community Bank that had been filed in the Western District of Pennsylvania.[38]  In April 2008, a state trial court granted partial summary judgment for Bumpers and Elliott.[39]  The trial court found that Community Bank had charged a loan discount fee without providing a discounted interest rate and held that such a practice violated Chapter 75.[40]  The court also concluded that the various itemized fees charged by Community Bank and Title America were duplicative and constituted systematic overcharging in violation of section 75-1.1.[41]  The court awarded plaintiffs treble damages pursuant to section 75-16.[42]  Community Bank appealed.[43]

B. Bumpers at the Court of Appeals

The court of appeals affirmed the trial court’s ruling that the loan discount fee was an unfair and deceptive trade practice.[44]  The unanimous panel likened the facts to an earlier case, Sampson-Bladen Oil Co. v. Walters,[45]  in which the court of appeals found that charges over a two-year period for 2,600 gallons of oil that were never delivered violated section 75-1.1.[46]  Just as the buyers in Sampson-Bladen Oil had been charged for undelivered goods, the court of appeals explained, the Bumpers plaintiffs alleged that Community Bank had charged them for something that there was no evidence they had received: a discounted interest rate.[47]  In response to the defendants’ contention that the plaintiffs failed to show actual reliance, the court of appeals characterized the loan costs not as a misrepresentation, but as a charge for a product not delivered.[48]  The court of appeals concluded that the undisputed evidence showed the plaintiffs did not receive reduced interest rates and that “where a defendant charges customers fees for a product that was never provided, defendant’s conduct proximately causes injury to those customers” within the meaning of section 75-1.1.[49]

Meanwhile, the court of appeals reversed the trial court’s ruling on the fees charged by Title America.[50]  The court of appeals pointed out that, in concluding that the closing fees charged by Title America “were excessive and constituted ‘systematic overcharging,’ ” the trial court had relied on a 1998 North Carolina Bar Association survey and the testimony of a real estate specialist.[51]  The certified specialist testified that the reasonable and customary cost of Title America’s closing services, if performed by an in-state attorney, would have been about $400, but the cost could have ranged up to $1,500 if billed at a normal hourly rate.[52]  The court of appeals concluded that, based on the specialist’s testimony, there was a genuine issue of material fact as to whether Title America’s fees of approximately $1,205 constituted overcharging.[53]  The court remanded the issue for further proceedings.[54]

C. Bumpers at the Supreme Court

The Supreme Court of North Carolina reversed the court of appeals’ holding regarding Community Bank’s loan discount fees.[55]  Rather than adopt the court of appeals’ characterization that the defendants had charged for a product that was not delivered, the supreme court framed the loan discount fee issue as one of misrepresentation.[56]  The court then determined that there were issues of material fact regarding whether Community Bank actually made a misrepresentation.[57]  The court pointed to a statement by a former Community Bank loan officer that the checked box on plaintiffs’ loan documents indicating no “buy-down,” which plaintiffs held out as evidence that they had not received discounted rates, referred only to temporary rate reductions that were not applicable to the plaintiffs’ second mortgage loans.[58]  The officer argued that this section of the loan document did not address whether the borrowers had received discounted interest rates.[59]

Even if there had been no issue of fact regarding whether plaintiffs had received a discount, the supreme court contended, plaintiffs did not prove that they had relied on Community Bank’s misrepresentation.[60]  The court asserted that “[s]uch a requirement has been the law of this state for quite some time.”[61]  Section 75-1.1, the court explained, “has long encompassed conduct tantamount to fraud, which requires reliance, and we see no reason for departure from that requirement when the actions alleged include the misrepresentation of a loan transaction that caused injury.”[62]

The court then set out a reliance test for misrepresentation-based section 75-1.1 claims. To prove detrimental reliance under the statute’s deception prong, the supreme court held that a plaintiff must establish “two key elements” of his mental state: (1) actual reliance and (2) reasonable reliance.[63] To establish actual reliance, the plaintiff must show that she “affirmatively incorporated the alleged misrepresentation into his or her decision-making process”—in other words, that “if it were not for the misrepresentation, the plaintiff would likely had avoided the injury altogether.”[64]  As to the second element, “[r]eliance is not reasonable where the plaintiff could have discovered the truth of the matter through reasonable diligence, but failed to investigate.”[65]  The supreme court rejected the court of appeals’ reasoning that plaintiffs had been charged for a product they had not received because, the supreme court said, “a claim for overcharging is not distinct from one based on misrepresentation.”[66]  Thus, the court of appeals should have required the plaintiffs to demonstrate their actual and reasonable reliance.[67]

Although the supreme court remanded the discount fee claim for further proceedings, it strongly suggested that no detrimental reliance could be found in this case. Notably, the court faulted Bumpers for completing the loan transaction without asking about the amount of the discount he was receiving or shopping around for loans with more favorable terms.[68] The court pointed out that Bumpers had also accepted the services of Title America, the closing service provider, without first shopping around for a less expensive provider.[69]  Elliott, too, chose the Community Bank loan over other options and declined to exercise his right to cancel the loan without cost.[70]  Because each plaintiff had other options and chose Community Bank, the court seemed to say, neither could object to the terms in their loan agreements.

Finally, the supreme court rejected the court of appeals’ recognition of a cause of action for excessive pricing under section 75-1.1.[71] Once again, the court relied on the fact that Bumpers and Elliott had chosen Community Bank over other vendors.[72] “In most cases,” the high court explained, “there is nothing unfair or deceptive about freely entering a transaction on the open market . . . . As a result, when transacting parties willingly and honestly negotiate a transaction, generally the transaction is not said to be unfair or deceptive.”[73]  Although the court acknowledged that there are exceptions to this rule—such as where a vendor sells “goods or services which are consumed or used as a direct result of an emergency or which are consumed or used to preserve . . . life, health, safety, or economic well-being” of a person, where price gouging is prohibited[74] —no such circumstances were present in this case.[75]

Two justices dissented. Justice Robin Hudson argued that the record revealed that the plaintiffs did not receive discounted interest rates on their loans despite being charged a loan discount fee.[76] She pointed out that, despite Community Bank’s testimony about the “buy-down” check box and its irrelevance to the plaintiffs, there was no actual evidence that the plaintiffs had in fact been given a loan discount.[77]  Justice Hudson argued, “the interest rate for which plaintiffs qualified was the interest rate they received; no further rate reduction is noted on the Form 1008 or elsewhere.”[78]  Justice Hudson also objected to the court’s holding that actual reliance was a necessary element of the plaintiffs’ section 75-1.1 claims.[79]  She noted that “the plain language of the statute does not require reliance.”[80]  The statute’s well-established purpose, she argued, was “ ‘to create a new, private cause of action for aggrieved consumers since traditional common law remedies were often deficient.’ ”[81]

Justice Cheri Beasley, in turn, argued that “the majority incorrectly characterizes plaintiffs’ unfair and deceptive practice claim as one based on misrepresentation and thus incorrectly requires proof of actual reliance to recover under section 75-1.1.”[82]  Regardless of whether North Carolina’s UDAP statute allows recovery for price gouging, “charging for a good or service never received is an unfair and deceptive practice that is distinct from excessive pricing.”[83]  The plaintiffs claimed neither that the price of the loans was too high (excessive pricing) nor that they were told that they would receive discounted loans (misrepresentation), Justice Beasley argued, but that defendant charged them a fee it should not have charged at all.[84]  “The term ‘misrepresentation’ appears nowhere in the [c]ourt of [a]ppeals’ opinion,” while the term “overcharge” appeared (in some form) eight times in the appellate court’s statement of facts.[85]  Further, Justice Beasley argued, prior North Carolina case law did not support a requirement of actual reliance for a section 75-1.1 claim. According to Justice Beasley, the cases that seemed to support the majority’s actual reliance requirement required reliance only because the plaintiffs in those cases were basing their UDAP claims on fraud.[86]  The majority’s reliance analysis “opens the door to an array of fees [that do not] reflect the fair cost of a good or service provided to the consumer,” and which the consumer cannot challenge if she had any other reason to choose to do business with that loan provider.[87]  Justice Beasley concluded that “[i]f entering a transaction freely is now a defense to an unfair and deceptive practice claim, then the entire purpose of Chapter 75 and its corollaries elsewhere in the General Statutes is void.”[88]

II. The Supreme Court’s Error in Requiring Consumers to Prove Actual and Reasonable Reliance

Perhaps the most immediately notable element of the Bumpers majority opinion is its addition of an explicit, two-pronged reliance requirement, which plaintiffs alleging deceptive trade practices must meet.[89]  However, the new “reasonable reliance” requirement for deception-based section 75-1.1 claims is highly problematic. First, it lacks the strong support in North Carolina precedent that the Bumpers court claims—in fact, Supreme Court of North Carolina precedent examining the statute’s purpose suggests strong disapproval for the standard now adopted by the Bumpers majority.[90]  Second, the heightened standard will likely damage the statute’s ability to protect consumers, particularly in the borrowing context. Instead, North Carolina should adopt a rebuttable presumption for deception-based section 75-1.1 claims that the plaintiff relied on the defendant’s misrepresentation.[91]

A. The Problems with Requiring Actual and Reasonable Reliance

By unequivocally adding a reliance element to section 75-1.1, the Bumpers court joined a minority of states that have explicitly required consumers to prove that they relied on a deception in order to recover under the state’s UDAP statute.[92]  The problem with requiring reliance in North Carolina is that it contradicts section 75-1.1’s primary purpose to provide remedies for consumers where common law causes of action had proven insufficient.[93]  If consumers are required to prove reasonable reliance to recover under section 75-1.1, then the statute moves closer to becoming merely a codification of fraud.[94]  However, the Supreme Court of North Carolina has itself previously confirmed that section 75-1.1 prohibits a broader range of business activities than fraud: “Proof of fraud would necessarily constitute a violation of the prohibition against unfair and deceptive acts; however, the converse is not always true.”[95]

In addition to being at odds with the original purpose of section 75-1.1, the new reasonable reliance requirement has a number of other harmful, potential side effects. First, such a requirement encourages businesses to try to evade liability for their deceptive practices by arguing that the consumer acted unreasonably when she fell for the sales pitch.[96]  For instance, a business might contend that a consumer who did not notice or understand a contractual provision was not paying sufficient attention, or might insert clauses stating that the consumer did not rely on what the company’s representative said.[97]  The latter tactic helped to protect a seller of real estate in Tucker v. Boulevard at Piper Glen LLC,[98]  in which the seller told the plaintiff that the townhouse it was building for the plaintiff would have a “dramatic,” “unparalleled,” and “panoramic” view of the neighboring golf course.[98]  The North Carolina Court of Appeals stated that, where a plaintiff’s section 75-1.1 claim was premised on an alleged misrepresentation by the defendant, the plaintiff must show his “actual reliance” on the defendant’s misrepresentation in order to establish the necessary proximate causation.[100] The court of appeals concluded that, because the “Purchase and Sale Agreement” did not mention the promised view and provided that “[n]either party is relying on any statement or representation made by or on behalf of the other party that is not set forth in this Agreement,” the evidence did not support actual reliance.[101]  A requirement of “reasonable reliance” arguably sets the bar even higher than actual reliance—even without a valid contractual provision disclaiming reliance, a defendant could escape liability merely by convincing a court that the plaintiff “should have known better” than to rely on the defendant’s representations. Such a requirement clears the way for businesses to exploit consumers’ knowledge gaps about the particular industry.

Further, a need to show reasonable reliance for each class member can defeat class certification, thus preventing consumers from forming class actions against unscrupulous merchants.[102]  Private enforcement is instrumental to the effectiveness of UDAP statutes in combatting the many variations and instances of consumer abuse.[103]  Where injuries to individual consumers are small, class certification may be essential to enable consumers to bring a section 75-1.1 claim and halt the exploitation.

Even aside from the damage a reliance requirement is likely to do to section 75-1.1’s effectiveness, the supreme court’s new requirement is also troubling because it significantly overstates the rule’s foundation in North Carolina law. The Bumpers court proceeded as if even a deceptive tinge[104] to a section 75-1.1 claim triggered an automatic requirement of reasonable reliance and claimed that such a requirement “has been the law of this state for quite some time.”[105]  However, before Bumpers, North Carolina cases were decidedly mixed on whether reliance for deception-related claims was necessary.[106] Though many court of appeals cases had explicitly required reliance,[107]  a number had flatly rejected it as a requirement for a section 75-1.1 claim.[108]  Howerton v. Arai Helmet, Ltd.[109] was the only Supreme Court of North Carolina case before Bumpers that appeared to require actual reliance.[110]  However, as Justice Hudson argued in her dissent, Howerton was distinguishable from Bumpers because the Howerton plaintiff based his UDAP claim on fraud and testified as to his reliance on the defendant’s representations when he made his purchase.[111]  By contrast, the Bumpers plaintiffs alleged not that they had relied on a misrepresentation, but that the defendant charged them a fee for something it did not deliver.[112]

Even more troubling than the court’s avowal of such an overarching reliance requirement, however, is its claim of a foundation in North Carolina UDAP law for a reasonable reliance element. One case the Bumpers court cited as support for its “reasonable reliance” rule, Forbis v. Neal, was a purely common law fraud case that did not so much as mention section 75-1.1.[113]  The Bumpers court also cited Pearce v. American Defender Life Insurance,[114]  both in declaring its two-pronged actual and reasonable reliance test and in claiming that such a rule “has been the law of this state for quite some time.”[115]  The Bumpers court pointed principally to a statement in Pearce that the second requisite to making out a claim under this statute is similar to the detrimental reliance requirement under a fraud claim. It must be shown that the plaintiff suffered actual injury as a proximate result of defendant’s deceptive statement or misrepresentation.[116]

Notably, the Pearce court did not say that reliance—and especially not reasonable reliance—was required; it stated merely that the detrimental reliance element of a fraud claim was similar to the proximate cause element of a section 75-1.1 claim.[117] While the Pearce court held that the evidence of the plaintiff’s husband’s detrimental reliance was sufficient to support a section 75-1.1 claim, it did not hold this particular finding to be necessary to show proximate cause under section 75-1.1.[118]  Additionally, though Pearce pointed to evidence that plaintiff’s husband had relied on the misrepresentations, it did not breathe the word “reasonableness.”[119]

In fact, precedent suggests that the Pearce court would have rejected a requirement of reasonable reliance outright. In Winston Realty Co. v. G.H.G., Inc.,[120]  a case decided at nearly the same time as Pearce, the Supreme Court of North Carolina disavowed language of an earlier court of appeals decision that “ ‘[e]ven if defendants misrepresented the location of the trash fill, this sophisticated plaintiff could and should have verified defendants’ assertions.’ ”[121]  The court held that contributory negligence was not a defense to a section 75-1.1 claim,[122]  reasoning that “ ‘[t]o rule otherwise would produce the anomalous result of recognizing that although [section] 75-1.1 creates a cause of action broader than traditional common law actions, [section] 75-16 limits the availability of any remedy to cases where some recovery at common law would probably also lie.’ ”[123]  In other words, the cases that the Bumpers court cited as evidence that a reasonable reliance requirement “has been the law of this state for quite some time”[124]  in fact provide very weak precedential support: one is a pure fraud case;[125]  the other never mentioned reasonable reliance[126]  and was decided only a year after the supreme court warned that requiring section 75-1.1 claims to meet the same standards as common law actions defeats the purpose of the legislation.[127]

While requiring consumers to prove reasonable reliance is in itself highly questionable, the potential consequences of its application to the mortgage context are simply alarming. The court faulted Bumpers for not inquiring specifically about the loan discount fee.[128]  It would thus appear that the court would only deem the plaintiffs to have “reasonably relied” on the “misrepresentation” if they had asked about the fee, received an affirmative assurance that they were receiving a discount, and then later discovered that the discount was not included in the final calculation.[129]  By this logic, to ensure her ability to recover under section 75-1.1, a consumer would be required to question every fee—and perhaps every provision—listed in the loan documents, wait for an assurance that each fee represented a real service, and then decide whether it was reasonable to rely on that assurance.

Requiring consumers to engage in such thorough investigation is simply not realistic in the lending context. The numerous fees and provisions which have enabled lenders to tailor their products to the needs of each borrower have also transformed mortgage loans into complex, nontransparent documents that evade the comprehension of even the most educated consumers.[130]  The same features make it difficult or even impossible to comparison shop for loan providers.[131]  Borrowers often sign documents without having a clear understanding of the terms of the contract, what they will get from the transaction, or the risks they assumed.[132]

Even after consumers have chosen a loan provider, they face similar problems with regard to closing services. The fees charged by Title America, which the trial court deemed redundant and duplicative,[133] were “deceptive” in the same way Community Bank’s loan discount fee was deceptive. Consumers often assume that the market for closing services is competitive and that it is in the lender’s interest to direct the borrower to the lowest cost provider, and thus they see little need to shop around for closing-service providers.[134]  Accordingly, they often rely on provider recommendations from their loan originator.[135] In reality, the prices of these third-party services vary widely, meaning that consumers regularly miss out on the opportunity to reduce title, closing, and other settlement costs.[136]  Because the average consumer does not understand the closing- services market, requiring consumers to prove reasonable reliance on a “misrepresentation” that a fee represents an actual service opens the door to consumer exploitation.

Given that section 75-1.1 was created to protect consumers, it is paradoxical to require consumers to exercise more than usual diligence. Requiring a consumer to prove reasonable reliance effectively collapses common law fraud and section 75-1.1 deceptive practices into the same cause of action, which the Supreme Court of North Carolina has warned should be avoided.[137]  Thus, whatever support there is in North Carolina law for requiring some degree of reliance when a plaintiff alleges deceptive practices, the Bumpers court’s reasonable reliance requirement and its application to the facts before it are plainly against the purpose of section 75-1.1.

B. The Proposal for a Reduced Reliance Requirement

North Carolina courts do not necessarily need to do away with a reliance element altogether for deception-based UDAP claims. The civil-enforcement provision requires that a plaintiff be “injured by reason” of the defendant’s act, and it might be difficult to prove such causation without establishing reliance.[138]  But if proof of reliance is required for a consumer deception claim under section 75-1.1, it must be a less stringent requirement.[139] This is especially true in situations in which the two parties have unequal bargaining power, as is the case between a borrower and a lending institution. The Supreme Court of North Carolina has already declared such inequality to inform its analysis under the “unfairness” prong of section 75-1.1.[140]  The court must consider this lack of bargaining power as well as the typical consumer’s ignorance of an industry’s business practices when deciding whether to allow a consumer to recover under the “deceptive” prong of the UDAP statute.[141]

This lowered bar for reliance could best be described as a rebuttable presumption in deception-based section 75-1.1 cases that the plaintiff relied on the defendant’s representation. Such presumption could be rebutted if the defendant could prove actual knowledge of the misrepresentation on the part of the consumer; that is, courts need not allow a consumer to recover section 75-16’s treble damages[142]  if there is proof that she knew the defendant’s statement was untrue, could have declined to enter into the transaction, and signed the contract anyway. Nonetheless, a consumer should be permitted to assume that his lender’s representations to him are accurate[143]  and that any service charge, however vaguely named, represents an actual service. The volume of documents associated with some transactions, including loans, makes it fundamentally impractical and unfair to require a consumer to investigate and absorb the meaning of every single provision.[144]  For the same reason, provisions such as the one in Tucker that “[n]either party is relying on any statement or representation made by or on behalf of the other party that is not set forth in this Agreement”[145]  should not be held to automatically protect a party from a section 75-1.1 claim.[146]  Insofar as the goal of section 75-1.1 is to protect consumers and hold businesses liable for unfair and deceptive practices, the presumption should be in favor of the consumer and against the deceptive party.

III. The Unfairness Prong: The Perfect Vehicle for Allegations of Bogus Charges

One of the more anomalous features of the North Carolina Supreme Court’s decision in Bumpers was its insistence that the plaintiffs’ claim be evaluated under the “deceptive” prong even though the plaintiffs did not expressly allege misrepresentation.[147]  The court rejected the court of appeals’ “systematic overcharging” theory,[148] reasoning that “a claim for overcharging is not distinct from one based on misrepresentation.”[149]  However, section 75-1.1 prohibits “unfair or deceptive” conduct,[150]  and while the court concluded that the defendant’s alleged act was not deceptive, the court never considered whether it might qualify as “unfair.” It is clear in North Carolina UDAP law that just because a practice is deemed not deceptive does not in any way bar the court from inquiring whether it is unfair[151] : “While an act or practice which is unfair may also be deceptive, or vice versa, it need not be so for there to be a violation of the Act.”[152]  Thus, the Bumpers court committed a fundamental error in not also inquiring whether the defendants’ practices were unfair. By doing so, the Supreme Court of North Carolina opened the door for lower courts to pick and choose which parts of North Carolina UDAP law they wish to apply.

Admittedly, judicial guidance as to what practices should be deemed “unfair” under section 75-1.1 is undeveloped compared to the case law on deceptiveness.[153]  North Carolina courts have alternated between a number of definitions of unfairness.[154] For example, “[a] practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers”;[155] alternatively, “[a] party is guilty of an unfair act or practice when it engages in conduct which amounts to an inequitable assertion of its power or position.”[156]  But North Carolina is not confined to its own case law for inspiration and guidance on how to determine which practices are “unfair.” North Carolina courts have often looked to federal decisions interpreting the Federal Trade Commission Act, as the language of section 75-1.1 closely parallels that legislation,[157]  and many other states around the country have similarly modeled their UDAP statutes.[158]

As it happens, charging fees for services not rendered is commonly considered an “unfair” trade practice outside of North Carolina.[159] For example, in Commonwealth v. DeCotis,[160]  the Massachusetts high court held that the practice of charging homeowners a fee at the time of a sale without rendering any services in connection with the fee constituted an unfair act or practice.[161]  This was so even where the homeowners were willing to pay the fee and knowingly contracted to pay it.[162]  Federal consumer protection laws also warn against charging fees other than for services actually provided.[163]

North Carolina courts should hold that charging fees not connected to an actual service is an unfair trade practice. The “essence” of an unfair trade practice under North Carolina law is that “[a] party is guilty of an unfair act or practice when it engages in conduct which amounts to an inequitable assertion of its power or position.”[164] Charging a consumer for a made-up service is certainly an inequitable assertion of power, since only one party—the one that wrote the contract—is in a position to carry out such an abuse.


The business of mortgage lending has grown increasingly complex, far beyond the comprehension of the average consumer. By requiring consumers to prove the same standard of reliance demanded in fraud claims, the Supreme Court of North Carolina goes squarely against the purpose of section 75-1.1 and opens the door for fraudulent businesses to deceive all but the savviest of consumers. The Bumpers decision threatens not only the integrity of the consumer loan situation but any business transaction in which the contracting party has the opportunity to slip language into the small print or in which the consumer depends on that party for information about the transaction. The more difficult the court makes it for consumers to enforce section 75-1.1, the more freedom dishonest merchants have to take advantage of North Carolina consumers without consequence.

Rebecca A. Fiss**

* © 2014 Rebecca A. Fiss.

** The author would like to thank Jerry Hartzell, who represented Mr. Bumpers, for sharing his knowledge and invaluable feedback. The author would also like to thank Chris Olson for his feedback and the Board of the North Carolina Law Review for its extreme patience and care.

DOWNLOAD PDF | 92 N.C. L. Rev.2145 (2014)