Pennymac may face prolonged “pay-to-pay” litigation after a judge rejected the company’s move to toss a borrower’s class action complaint.

North Carolina homeowner Clayton Williams is suing Pennymac in federal court over the fee he was charged when he made a mortgage payment with a debit card last year. The servicer says a third-party vendor charges up to $6.75 for such transactions, and Pennymac defends the cost as lawful.

Williams claims the charge violates state debt collection and deceptive trade practices laws. U.S. District Judge Irene Berger, in an opinion and order filed Monday, agreed that the borrower’s lawsuit has some merit.

“Plaintiff alleges that ‘Pennymac illegally pockets the difference’ between the fees and the much lower actual costs of processing debit card payments,” wrote Berger. “The court finds those allegations sufficient, at this stage, to state a claim that Pennymac exercises control over the collection of the pay-to-pay fees.”

Law360 first reported Berger’s ruling.

The parties in opposing filings cited both federal guidance and prior legal decisions siding with, and opposing the legality of the fees. The Consumer Financial Protection Bureau previously targeted such so-called “junk fees”, although its guidance was withdrawn this year by the incoming Trump administration. Servicers meanwhile have recorded mixed success in litigating similar servicing fee disputes.

Neither Pennymac nor attorneys for the parties returned requests for comment Wednesday. Berger has not scheduled further deadlines or hearings so far in the case.

Why the Pennymac borrower sued over the fees

Williams said the fee he paid last May for using his debit card to pay his loan was illegal, because it wasn’t expressly authorized in standard mortgage agreements. His lawsuit claims the company charges $15 for borrowers to pay their mortgage over the phone, when it costs servicers $0.50 or less per transaction.

In all, Williams suggests Pennymac has collected pay-to-pay fees from an untold number of North Carolina-based class members in excess of $5 million.

Pennymac has responded to those claims by stating the third-party fee is clearly disclosed as an optional payment method, and that no part of the fees are paid or passed through the servicer.

“If servicers are forced to absorb the costs of optional payment delivery services offered by third-party vendors, this will result in either higher lending costs or fewer choices for consumers, or both,” wrote attorneys for Pennymac in a June filing.

The company also states that the fees are lawful, because the parties are allowed to enter into a separate agreement for services not covered by the mortgage contract.

The judge also disagreed with Pennymac’s comparison of the pay-to-pay fees to mailing costs, if borrowers sent checks via the United States Postal Service or FedEx. In that scenario, customers control which services they use to pay.

“Therefore, the Court finds that Pennymac’s argument that it cannot be liable because the fees were charged by a third party must be rejected,” the judge wrote.

While servicers including Newrez and Roundpoint are fighting similar claims, Mr. Cooper earlier this year notched a victory in its own pay-to-pay suit. A Washington federal judge in August ruled the megaservicer’s own $25 expedited payoff quote statement fee was lawful, a decision plaintiffs have appealed to a circuit court.