CFPB Proposes Regulations to Clarify, Modernize, and Implement the Fair Debt Collection Practices Act

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Nicole R. Topper, Scott E. Wortman, and Paul Messina Jr.

Financial institutions and debt collectors should take note of, and provide comments on, the CFPB’s recent Notice of Proposed Rulemaking, which attempts to provide consumers with “clear protections against harassment by debt collectors and straightforward options to address or dispute debts.”      

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited Notice of Proposed Rulemaking (“NPRM”), aiming to clarify and modernize the Fair Debt Collections Practices Act (“FDCPA”). The over 500-page NPRM marks the CFPB’s latest half-decade long effort to issue the first set of substantive rules interpreting the FDCPA since its passage in 1977.


Seeking to curb abuses in the debt collection industry, Congress enacted the FDCPA in 1977. However, with the passage of time and the creation of new technologies, ambiguities and uncertainties in the industry developed. Without any federal agency delegated authority to write substantive rules interpreting the FDCPA, the courts were left with the sole burden of doing so. That changed in 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) delegating authority to the CFPB.

Citing the ongoing and abundance of consumer complaints, as well as the need to adapt the FDCPA for modern technologies, the CFPB called for public input on potential new regulations in 2013, and again in 2016, releasing an outline of proposals under consideration. This week’s NPRM incorporates many of those ideas with some adjustments. The NPRM will be open for 90 days for public comment following its publication in the Federal Register.

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Fifth Circuit Holds that a Request for Proof of Authority to Collect Does Not Constitute a “Qualified Written Request” Under RESPA

By:      Joshua A. Huber

On July 14, 2016, the Fifth Circuit Court of Appeals issued its opinion in In re Parker, holding that a qualified written request (“QWR”) pursuant to the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 (“RESPA”), does not encompass a borrower’s written request for proof of a lender’s status as the noteholder, or its authority to collect payments under a promissory note and deed of trust.[1]

The borrowers in In re Parker served their lender with correspondence titled “RESPA Qualified Written Request, Complaint, Dispute of Debt & Validation of Debt Letter,” which primarily questioned whether the lender was the owner of their promissory note with authority to collect payments.[2] The borrowers alleged in their subsequent lawsuit against the lender that this letter constituted a valid QWR and that the lender was liable under RESPA for its failure to respond and provide evidence of its authority.[3]

In rejecting the borrowers’ claim, the Fifth Circuit first noted that the borrowers were required to demonstrate, as a threshold matter, that the correspondence they sent to the lender was in fact a QWR within the meaning of RESPA.[4] The court observed that a valid QWR “must be related to the servicing of the loan,” which RESPA defines as “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”[5] Because the borrowers’ purported “QWR” requested only proof of the lender’s authority to collect payments under the promissory note and deed of trust, which does not relate to “servicing of the loan” under RESPA, the Fifth Circuit affirmed the dismissal of the borrowers’ claim.[6]

This is a significant development in RESPA jurisprudence, as it clarifies the limited scope and purpose of a QWR. The decision also provides lenders in the Fifth Circuit with a strong defense to RESPA violation claims premised on failure to respond to “show-me-the-note” correspondence from borrowers, as opposed to legitimate servicing-related inquiries.

[1] In re Parker, No. 15-41477, 2016 WL 3771837, at *4 & n.26 (5th Cir. Jul. 14, 2016).

[2] Id. at *1.

[3] Id. at *1 & n.4.

[4] Id. at *4.

[5] Id. (quoting 12 U.S.C. §§ 2605(e)(1)(A) & (i)(3))(emphasis added).

[6] Id. at *4 & n.6 (emphasis added).

CFPB Takes Action Against Auto Seller Financing, Construes Failure to Negotiate as Hidden Finance Charge

By: Todd C. Smith

On January 21, 2016, The CFPB (the “Bureau”) issued Consent Order Y King S Corp., d/b/a Herbies Auto Sales, finding various violations of the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., and Regulation Z, 12 C.F.R. Part 1026; and the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531, 5536. (2016-CFPB-0001 (Jan. 16, 2016).) Among other violations, the Bureau found that Herbies Auto Sales (“Herbies) failed to accurately disclose the finance charge and annual percentage rate for financing agreements, as well as certain costs and discounts that should have been construed as finance charges. Cash purchasers were notably exempt from many of these costs. The Bureau also found that Herbies took unreasonable advantage of consumers, who were unable to protect their interests in selecting and obtaining financing for used car purchases.

Herbies’ sales practices also drew condemnation by the Bureau, which found purchasers’ ability to meaningfully comparison shop frustrated by Herbies’ policy of not disclosing the sale price of a vehicle until after credit purchasers had agreed to buy the car chosen for them, based on Herbies’ calculation of the monthly payment each credit purchaser could bear.

While the majority of the remedial portion of the Consent Order appears narrowly applicable to Herbies—including the requirement that Herbies obtain a signed acknowledgment of receipt of specific disclosures relating to the sale price and finance terms of future sales— the Bureau’s most significant determination may be its decision to construe the gap in average purchase price between cash and credit purchasers as a hidden finance charge in the form of a discount offered to cash purchasers. This decision to hold Herbies responsible for the disparity in bargaining power between cash and credit buyers may prove more significant to other targets of the Bureau’s enforcement activity going forward. It remains to be seen whether the Bureau will extrapolate its findings to other contexts outside of used car sales, in which cash and credit are used for consumer purchases.

Third Circuit Clarifies FDCPA Restrictions on Third-Party Communication

By: Joshua A. Huber

In Evankavitch v. Green Tree Servicing, LLC, the Third Circuit considered, as a matter of first impression, which party bears the burden with respect to alleged improper third-party communications under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). Evankavitch v. Green Tree Servicing, LLC, —F.3d—, 2015 WL 4174441, at *1 (3d Cir. Jul. 13, 2015). Put differently, the Court was asked to determine whether the debt collector must prove that allegedly improper third-party communications fall within § 1692b’s exception, or whether it is incumbent on the debtor to disprove the applicability of that exception as an element of his claim.   Id.

Under the FDCPA, a debt collector is liable to a consumer for contacting third parties in pursuit of that consumer’s debt unless the communication falls under a statutory exception. One such exception permits communication with a third party “for the purpose of acquiring location information about the consumer” but, even then, prohibits more than one such contact “unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information.” 15 U.S.C. § 1692b.

The Third Circuit ultimately determined that the burden falls on the debt collector. Evankavitch, 2015 WL 4174441, at *10. Noting the “‘longstanding convention’ that a party seeking shelter in an exception . . . has the burden to prove it,” the Court held that Green Tree was required to prove that any alleged third party communications were only for purposes of obtaining location information about Evankavitch and therefore within the narrow exception to the FDCPA’s general prohibition on communications with third parties. Id. at *5.

New York Adopts More Stringent Debt Collection Regulations

By:  Diana M. Eng and Jennifer L. Neuner

The New York State Department of Financial Services recently issued new regulations requiring debt collectors to provide additional disclosures to consumers. The new regulations (see 23 NYCRR § 1) are intended to provide protections beyond what is currently required by the Fair Debt Collection Practices Act (“FDCPA”). These new debt collection regulations will become effective in March 2015, except that provisions regarding required disclosures for charged-off debt[1] and substantiation of a charged-off debt[2] will become effective in August 2015.[3]

Required Initial Disclosures

The regulations require enhanced initial disclosures when a new debt collector first contacts an alleged debtor. The newly mandated disclosures include specific notices that are not formally required by the FDCPA. Specifically, pursuant to 23 NYCRR § 1.2, the debt collector must, within 5 days of the initial communication with the consumer, provide “clear and conspicuous written notification” that 1) debt collectors are prohibited from engaging in “abusive, deceptive, and unfair debt collection efforts” under the FDCPA; and 2) a written statement that if a creditor or debt collector receives a money judgment against the consumer in court, state and federal laws may prevent certain types of income from being taken to pay the debt, including, among others, social security, public assistance, unemployment and disability benefits, pensions and veterans’ benefits.

Similarly, with respect to debts that have been charged-off, the debt collector must, within 5 days of the initial communication with the consumer, provide a “clear and conspicuous” written notification about the debt, including 1) the name of the original creditor; and 2) an itemized accounting of the charged-off debt, including the amount owed as of charge-off, total amount paid on the debt since the charge-off and the total post charge-off interest, charges and fees. 23 NYCRR § 1.2(b).

Required Disclosures Regarding Collection of So-called “Zombie Debts”

The regulations also require disclosures regarding the collection of debts for which the statute of limitations has already expired. 23 NYCRR § 1.3. Further, the debt collector must maintain reasonable procedures to determine the applicable statute of limitations of a debt and to determine whether the statute of limitations has expired. The FDCPA does not contain such requirements.

Under the New York regulation, if a debt collector “knows or has reason to know” that the statute of limitations for a debt may have expired, the debt collector must provide a “clear and conspicuous” notification to the consumer that 1) the debt collector believes that the statute of limitations may be expired; 2) suing on a debt for which the statute of limitations has expired is a violation of the FDCPA, and, if the consumer is sued, the consumer may present evidence to the court that the statute of limitations has run; 3) the consumer is not required to provide the debt collector with an admission of any kind that the debt is still owed, or to waive the statute of limitations; and 4) a partial payment of the debt, or other admission that the debt is owed, may restart the statute of limitations. 23 NYCRR § 1.3(a)-(b). Further, the regulation provides specific language that would comply with the notice requirement.

Requirements Regarding “Substantiation” of the Debt

The regulations also contain important changes regarding a debt collector’s obligations when a consumer disputes the validity of a charged-off debt. 23 NYCRR § 1.4. Currently, under the FDCPA, consumers must dispute the debt in writing and request verification of the debt within 30 days of the first collection attempt. See 15 U.S.C. § 1692g. Under the new New York regulations, consumers may request “substantiation” of the debt at any time during the collections process, and may do so orally. Once a request is received, the debt collector must provide the consumer written substantiation of a charged-off debt within 60 days of receiving the request. 23 NYCRR § 1.4(b). The debt collector must also cease collection until written substantiation has been provided to the consumer. The regulation further lists the various forms of documentation required to substantiate the debt.

In addition, the New York regulation includes a document retention requirement related to a request for substantiation of a charged-off debt under 23 NYCRR § 1.4. 23 NYCRR § 1.4(d). Specifically, debt collectors must retain evidence of the consumer’s request for substantiation and all documents provided in response to such request until the charged-off debt is discharged, sold or transferred.[4]

Requirements for Agreements to Settle a Debt

The regulations also include procedures for documenting any agreement between the consumer and the debt collector to satisfy or otherwise settle the debt. 23 NYCRR § 1.5. The FDCPA does not regulate communications from a debt collector regarding settlement. Under the new regulations, a debt collector must, within 5 business days of agreeing to a debt payment schedule or other agreement to settle the debt, provide the consumer with 1) written confirmation of the debt payment schedule or agreement, including all material terms and conditions relating to the agreement; and 2) a notice stating that if a creditor or debt collector receives a money judgment against the consumer in court, state and federal laws prevent certain types of income from being taken to satisfy the debt.[5] The debt collector is also required to provide the consumer with 1) an accounting of the debt on at least a quarterly basis while the consumer is making scheduled payments; and 2) a written confirmation of the satisfaction of the debt, along with the name of the original creditor and the account number, within 20 days of receipt of the final payment.[6] 23 NYCRR § 1.5.

Debt collection companies that operate in New York should review their current policies and take steps to comply with the new regulations in advance of the 2015 effective dates. Specifically, debt collectors should ensure that initial disclosures satisfy the new regulations, that disclosures inform consumers regarding the potential expiration of the statute of limitations and that procedures are in place to substantiate the debt upon a debtor’s request.

[1] 23 NYCRR § 1.2(b).
[2] 23 NYCRR § 1.4.
[3] 23 NYCRR § 1.7.
[4] Debt collectors who transfer a charged-off debt should consult the CFPB rules regarding mortgage servicing transfers to the extent applicable.
[5] This notice provision is identical to the statement required in the initial disclosures (23 NYCRR § 1.2) noted above.
[6] 23 NYCRR § 1.6 provides that, after mailing the initial disclosures required by Section § 1.2, a debt collector and consumer may communicate via email, if the consumer voluntarily provides an email address and consents to receiving email correspondence regarding a specific debt.



By: Joshua A. Huber

On November 20, 2014, the Consumer Financial Protection Bureau (the “Bureau”) proposed changes to the mortgage servicing rules under Regulation X, which implements the Real Estate Settlement Procedures Act (“RESPA”), and Regulation Z, the implementing regulation for the Truth in Lending Act (“TILA”). The Bureau has proposed, with one exception,[1] that the amendments take effect 280 days after publication of a final rule in the Federal Register.

The proposal encompasses nine broad topics,[2] the most significant of which are summarized below:

Expansion to Successors in Interest. The Bureau is proposing to apply all of the Mortgage Servicing Rules[3] to successors in interest of a borrower once a servicer confirms the successor in interest’s identity and ownership interest in the property. This aspect of the proposal would help ensure that those who inherit or receive property, such as a surviving family member, have the same protections under the Mortgage Servicing Rules as the original borrower.

Requests for Information. The Bureau is proposing amendments that would change how a servicer must respond to requests for information asking for ownership information for loans in trust for which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor. As modified, mortgage servicers for loans for which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor would comply with their obligations under Regulation X[4] when the servicer responds to requests for information asking only for the owner or assignee of the loan by providing only the name and contact information for Fannie Mae or Freddie Mac, as applicable, without also providing the name of the trust.

Loss Mitigation. The most sweeping aspects of the proposed rule changes are those pertaining to loss mitigation. The Bureau is proposing to:

(1) Require servicers to meet the loss mitigation requirements more than   once in the life of a loan for borrowers who become current after a delinquency;

(2) Modify the existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the foreclosure action of a senior lienholder;

(3) Clarify that servicers have significant flexibility in setting a reasonable date by which a borrower must return documents and information to complete an application, so long as the date maximizes borrower protections and allows borrowers a reasonable period of time to return documents and information;

(4) Clarify that servicers must take affirmative steps to delay a foreclosure sale, even where the sale is conducted by a third party, including clarification that the servicer has a duty to instruct foreclosure counsel to take steps to comply with the dual-tracking prohibitions and that a servicer who has not taken, or caused counsel to take, all reasonable affirmative steps to delay the sale, is required to dismiss the foreclosure action if necessary to avoid the sale;

(5) Require that servicers who receive a complete loss mitigation application must promptly provide borrowers with written notice stating: (a) a complete application was received, (b) additional information may be requested if needed, (c) the date of completion, (d) whether a foreclosure sale was scheduled as of that date, (e) the date foreclosure protections began, (f) the borrower’s applicable appeal rights, and (g) that the servicer will complete its evaluation within 30 days;

(6) Address and clarify how servicers obtain and evaluate third party information not in the borrower’s control, including: (a) prohibiting servicers from denying modifications based upon delays in receiving such third party information; (b) requiring prompt notice to the borrower of any missing third party information within 30 days after receiving a complete application; and (c) requiring servicers to notify borrowers of their determination in writing promptly upon receipt of the third party information;

(7) Permit servicers to offer a short-term repayment plan based upon an evaluation of an incomplete application;

(8) Clarify that servicers may stop collecting documents and information from a borrower pertaining to a loss mitigation option after receiving information confirming that the borrower is ineligible for that option; and

(9) Address and clarify how loss mitigation procedures and timelines apply to a transferee servicer that receives a mortgage loan for which there is a loss mitigation application pending at the time of a servicing transfer.[5]

The proposed rules, including the proposed effective date, will be open for public comment for 90 days after its publication in the Federal Register.

These proposed rules, particularly as they pertain to loss mitigation, may present operational challenges for mortgage servicers. The revised notice requirements and additional loss mitigation obligations may result in significant increased litigation and compliance costs.

[1] The Bureau has proposed that the amendments applicable to the periodic statement requirement for certain bankrupt borrowers should take effect one year after publication.

[2] In addition to the areas addressed herein, the Proposed Rules include: (1) a definition of the word “delinquency,” (2) new requirements pertaining to force-placed insurance, (3) clarification of the “early intervention” requirements for loss mitigation, (4) guidance regarding payment crediting and application for borrowers under temporary or permanent loan modifications, and (5) changes to the definition of “small servicer.”

[3] The term “Mortgage Servicing Rules” as used herein refers to the Bureau’s January 2013 final rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), as amended in 2013 and 2014. See 78 FR 44685 (July 24, 2013), 78 FR 60381 (Oct. 1, 2013), 15 U.S.C. 1692 et seq, 78 FR 62993 (Oct. 23, 2013).

[4] 12 CFR § 1024.36(d).

[5] The proposed rule would cover the transfer of mortgages between servicers during the loss mitigation process. In a voluntary transfer, the new servicer would be required to observe the date the borrower’s loss mitigation application became complete with the prior servicer. The new servicer would be provided an additional five days to provide the acknowledgment notice. However, for an involuntary transfer, the new servicer would be provided at least 15 days to evaluate the transferred loss mitigation applications.



Flagstar Bank Agrees to $37.5 Million Settlement with CFPB

By:  Joshua A. Huber

On September 28, 2014, Flagstar Bank, FSB (“Flagstar”) agreed to a Consent Order, under which it will pay $37.5 million to resolve allegations that it engaged in unfair acts or practices by impeding borrowers’ access to loss mitigation. Flagstar’s settlement with the Consumer Financial Protections Bureau (CFPB) marks the CFPB’s first major enforcement action under the new Mortgage Servicing Rules, which became effective January 1, 2014.[i]

The CFPB’s allegations encompassed five (5) areas of Flagstar’s default servicing practices. Specifically, the CFPB found that:

  1. Flagstar systematically failed to review loss mitigation applications in a reasonable amount of time which often caused required documents to expire. The CFPB specifically referenced Flagstar’s insufficient staffing, a significant backlog of loss mitigation applications, call wait times exceeding twenty-five (25) minutes and a ninety (90) day timeline to review a single borrower application.
  2. Flagstar withheld information that borrowers needed to complete their loss mitigation applications, such as “missing document letters” which are designed to inform borrowers of deficiencies in pending applications.
  3. Flagstar lacked a systemized, controlled process for calculating borrower income, which led to the improper denial of a large number of modifications.
  4. Flagstar impermissibly extended trial period plans beyond the timeframe permitted by investors, causing borrowers to lose out on permanent modifications.
  5. Flagstar’s ongoing administration of loss mitigation programs does not comply with the Mortgage Servicing Rules.

Flagstar consented to the issuance and enforcement of the Consent Order but neither admitted nor denied the CFPB’s findings of fact or conclusions of law. The remedial aspects of the Consent Order include a damages payment of $27.5 million ($20 million of which will be paid to foreclosed borrowers), a $10 million civil penalty pursuant to 12 U.S.C. § 5565(c) and a temporary prohibition on Flagstar’s ability to acquire servicing rights to any third-party originated loans which are in default.

The Consent Order demonstrates the CFPB’s continued focus on loss mitigation practices during the peak of the financial crisis. In light of this Consent Order, mortgage servicers would be well-served by reviewing and re-evaluating their loss mitigation processes.

[i] See 12 C.F.R. § 1024.41(b), et seq.