On August 4, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued its final rule setting forth amendments and clarifications to mortgage servicing regulations. These changes follow a prior round of revisions to mortgage servicing regulations that went into effect in January 2014. Since proposing the amendments to the regulations in November 2014, the CFPB received and reviewed hundreds of comments. At just over 900 pages in length, the final rule addresses numerous areas of mortgage servicing, including the following:
Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.
On July 14, 2015, the U.S. District Court for the Northern District of Georgia denied defendants’ motion to dismiss the Consumer Financial Protection Bureau’s (CFPB) claims in CFPB v. Frederick J. Hanna & Associates. The CFPB’s complaint in this case alleges that the defendants, a law firm and its principals, operate “less like a law firm than a factory” that files tens of thousands of collection cases each year. The complaint alleges that the defendants filed over 350,000 collection suits each year, but that attorneys spend less than a minute reviewing and approving each suit. The CFPB’s complaint alleges that the lack of attorney involvement constitutes a violation of the Fair Debt Collection Practices Act’s (FDCPA) and the Consumer Financial Protection Act’s (CFPA) prohibitions on deceptive practices because the collections actions filed by the defendants represented to consumers that attorneys were meaningfully involved in filing those actions when in fact they were not. The CFPB’s complaint also alleges that the defendants’ use of affidavits in which affiants represented they had personal knowledge of the validity and ownership of the debts violated these same statutes.
The New York Department of Financial Services (“DFS”) has updated its FAQ on the debt collection regulations that took effect on March 3, 2015. We analyzed the regulations in a client alert and covered an earlier version of the FAQ in a previous blog post.
Responding to industry questions about New York’s new debt collection regulations, most of which take effect on March 3, 2015, the Department of Financial Services has published a detailed FAQ on its website. We previously analyzed the regulations in a client alert.
As we anticipated in our alert, the FAQ confirms that “debt servicers, including companies that service student loans, home equity loans or mortgages … who collect or attempt to collect a debt that was not in default at the time it was obtained for collection are not” subject to the regulations. This parallels how the federal Fair Debt Collection Practices Act (“FDCPA”) is interpreted.