CFPB Issues Interpretive Rule to Reconcile Mortgage Servicing Rules with FDCPA

In an attempt to reconcile the Mortgage Servicing Rules with the FDCPA, the CFPB has issued an interpretive rule to clarify the interactions between the two.  The rule constitutes an advisory opinion under the FDCPA (15 U.S.C. §1692l(e)) and provides a safe harbor for actions done or omitted in good faith reliance upon the rule.  The rule comes in response to concerns raised by the mortgage industry, consumer advocate groups, and other stakeholders and is being released contemporaneously with the latest modifications to the Mortgage Servicing Rules.

The Rule provides three safe harbors:

1.     Confirmed Successors in Interest.  Under the revised Mortgage Servicing Rules, successors in interests are defined to include persons to whom an ownership interest in property secured by a mortgage loan has been transferred and includes a transfer by death or by divorce or property settlement.  The interpretative rule is designed to reconcile the narrower definition of permissible third parties identified in 15 U.S.C. 1692d(b) and facilitate mortgage servicers’ need to communicate with those successors in interest.  Under the FDCPA, debt collectors are generally prohibited from communicating with third parties in connection with collection of a debt absent a court order or prior consumer consent.  Section 1692d permits debt collectors to communicate with certain enumerated parties including the consumer’s spouse, parent (if the debtor is a minor), executor, guardian or administrator.  The Rule interprets 1692d to also include any confirmed successor in interest as that term is defined under the revised Mortgage Servicing Rules.  Under the Rule, mortgage servicers subject to the FDCPA do not violate the FDCPA by communicating with confirmed successors in interest about a mortgage loan secured by property in which the confirmed successor in interest has an ownership interest, in compliance with the Mortgage Servicing Rules. Mortgage servicers should note that the interpretative rule does not relieve servicers of their other obligations to comply with the FDCPA.  This portion of the Rule will take effect 18 months after it is published in the Federal Register.

2.      Required Early Intervention Notice.  The 2016 amendments to the Mortgage Servicing Rules and the FDCPA interpretive rule reconcile conflicts between the FDCPA’s cease and desist provisions and the Mortgage Servicing Rules’ early intervention notice requirements.  15 U.S.C. 1692d(c) generally prohibits debt collectors from further communications with the debtor after receiving a written request that the debt collector cease communications.   Meanwhile, the Mortgage Servicing Rules require servicers to provide certain written notices prior to initiating foreclosure.  The Rule allows for mortgage servicers who are debt collectors regarding covered mortgages to provide a modified written early intervention notice to borrowers who have invoked the cease communication provisions under the FDCPA unless the debtor or a covered borrower are in bankruptcy or there are no available loss mitigation programs.  The revised Mortgage Servicer Rules provide model language that will fall within the safe harbor:

 
This is a legally required notice. We are sending this notice to you because you are behind on your mortgage payment. We want to notify you of possible ways to avoid losing your home. We have a right to invoke foreclosure based on the terms of your mortgage contract. Please read this letter carefully.

Regulation X §1024.39(d)(3).  The Rule limits itself to 15 U.S.C. §1692d(c) and does not provide a safe harbor from any other violations that may arise from the communication.  This portion of the Rule will take effect 12 months after the Rule is published in the Federal Register.

3.     Borrower Initiated Communications After Invoking a Cease and Desist. 

The Rule also provides a safe harbor where the borrower has invoked a cease and desist and then initiates communications with the mortgage servicer regarding loss mitigation.  The Rule provides a safe harbor that any such communications with the servicer regarding loss mitigation do not violate 15 U.S.C. §1692d(c).  “Borrower-initiated conversations about loss mitigation options do not give rise to the burden of unwanted communications that FDCPA section 805(c) protects against.  Rather, they are sought out by borrowers for this narrow purpose.  The Bureau therefore concludes that a borrower’s cease communication notification pursuant to FDCPA section 805(c) should ordinarily be understood to exclude borrower-initiated communications with a servicer concerning loss mitigation because the borrower has specifically requested the communication at issue to discuss available loss mitigation options.”   The Rule further makes clear that the safe harbor is limited to discussions of any potentially available loss mitigation options.  The FDCPA protections remain in place to the extent the communications are outside the scope of loss mitigation conversations.  This portion of the Rule will take effect 12 months after the Rule is published in the Federal Register.