Mortgage-specific provisions in the CFPB’s proposed debt collection rules
Continuing our coverage of the CFPB’s proposed debt collection rules, this blog post will focus on a few provisions that pertain specifically to mortgage servicers.
In part, the proposal continues the CFPB’s efforts to harmonize mortgage servicing regulation (which generally promotes communication with consumers) and debt collection regulation (which generally restricts communication with consumers). The CFPB structured its mortgage servicing rules in a way that is intended to enable servicers to make a host of required communications without running afoul of the federal Fair Debt Collection Practices Act (FDCPA). To accomplish this, the CFPB incorporated a variety of exceptions and alterations to the mortgage servicing rules to avoid FDCPA risk.
This has been an evolving process with the CFPB servicing rules, starting with the initial proposed rulemaking. Subsequently the CFPB issued Bulletin 2013-12, which clarified the interplay between the servicing rules and the FDCPA. Most recently, the CFPB issued the 2016 amendments to the mortgage servicing rules (effective at different times in 2017 and 2018), which narrowed certain of the FDCPA-related exceptions to the communication requirements.
Simultaneously with the 2016 servicing rule amendments, the CFPB issued an Interpretive Rule, creating a safe harbor from FDCPA liability for complying with certain of the servicing rules. In general terms, the Interpretive Rule stated that: (1) communicating with a confirmed successor-in-interest (CSII), in accordance with the rules, does not violate the FDCPA prohibition on third party collection communications; (2) certain early intervention communications with a delinquent borrower, despite an FDCPA cease communication request, does not violate that provision of the FDCPA; and (3) communicating with a consumer regarding loss mitigation, despite an FDCPA cease communication request, does not violate that provision of the FDCPA, if the dialogue was initiated by the consumer.
The mortgage-specific provisions of the proposed debt collections rules, in part, pick up where the Interpretive Rule left off.
Reinforcing the positions taken in the Interpretive Rule, the proposed debt collection rules include a CSII (as defined in the mortgage servicing rules) in the special definition of a “consumer” for purposes of Section 1006.6 (the general collection communication section; analogous to Section 805 of the FDCPA). In the Interpretive Rule, the CFPB took the position that the special definition of a “consumer,” for purposes of Section 805 of the FDCPA, includes a CSII, as they are the type of individuals with whom a servicer needs to communicate about the mortgage loan. Accordingly, under the proposed debt collection rules, a CSII would be deemed a “consumer” for purposes of: (1) the prohibitions regarding unusual or inconvenient times or places; (2) the prohibitions regarding consumers represented by an attorney; (3) the prohibitions regarding a consumer’s place of employment; (4) the prohibitions on communication with a consumer after a refusal to pay or cease communication notice; (5) communications with third parties; and (6) opt-out notices for electronic communications or attempts to communicate. In addition, this special definition of “consumer,” which includes a CSII, applies to the prohibited communication media provisions in Section 1006.14(h).
The Official Staff Commentary to the proposed debt collection rules also notes and reinforces the position of the Interpretive Rule regarding written early intervention notices for mortgage servicers. It states that the CFPB has interpreted the written early intervention rule, required by 12 C.F.R. 1024.39(d)(3), to fall within the exemptions to the FDCPA cease communication provisions in Section 805(c)(2) and (3). We note that the proposed rules do not specifically call out the position from the Interpretive Rule regarding consumer-initiated loss mitigation communications. This is not necessarily surprising, however, as that interpretation is better supported by the FDCPA’s plain language.
Finally, the proposed debt collection rules allow for alternate content in the validation notice, for loans subject to the mortgage periodic statement requirement in 12 CFR 1026.41. Validation notices issued for such mortgage loans can omit: (1) the itemization date; (2) the amount of debt on the itemization date; and (3) the itemization of the current amount of the debt in a tabular format, reflecting interest, fees, payments, and credits since the itemization date. This content can only be omitted, however, if the debt collector: (1) provides a copy of the most recent periodic statement provided to the consumer, in accordance with Regulation Z, along with the validation notice; and (2) refers to the periodic statement in the validation notice. Sample language for that reference is included in the Official Staff Commentary.
Apart from these omissions, all other validation notice content is still required, including the current amount of the debt. We note that interpreting the correct manner of disclosing or calculating the current amount of the debt for purposes of a validation notice has historically been problematic for mortgage obligations. Apparently to address this issue, the Official Staff Commentary to the proposed debt collection rules includes clarification regarding the “current amount of the debt” for mortgages. It states that for “residential mortgage debt subject to [the periodic statement requirements in] Regulation Z, 12 C.F.R. 1026.41, a debt collector may comply with the requirement to provide the current amount of the debt by providing the consumer the total balance of the outstanding mortgage, including principal, interest, fees, and other charges.”