CFPB Issues Debt Collection Interim Final Rule Due to the Ongoing COVID-19 Pandemic

Wayne StreibichDiana M. Eng, and Chenxi Jiao

The CFPB’s interim final rule amends Regulation F to, among other things, (i) require debt collectors to provide written notice to certain consumers about the CDC’s temporary eviction protections; and (ii) prohibit debt collectors from misrepresenting that a consumer is ineligible for eviction protection under the CDC’s moratorium. Debt collectors should take the necessary steps to ensure compliance with the amendment.

On April 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule to amend Regulation F at 12 C.F.R. § 1006 (the “IFR”) to require debt collectors to provide consumers with disclosures relating to the Centers for Disease Control and Prevention (“CDC”) order, titled “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19” (86 FR 16731 (Mar. 31, 2021)) (the “CDC Order”). The CDC Order “generally prohibits a landlord, owner of a residential property, or other person with a legal right to pursue eviction or possessory action from evicting for non-payment of rent any person protected by the CDC Order from any residential property in any jurisdiction in which the CDC Order applies.” This prohibition applies to any agent or attorney acting on behalf of a landlord or owner of a residential property. Notably, however, the CDC Order does not cover foreclosure on a home mortgage.

The CFPB issued the IFR due to its concerns that consumers are unaware of their protections under the CDC Order and that debt collectors may be engaging in eviction-related conduct that violates the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”). The IFR applies to “debt collectors,” “consumers,” and “debt,” as defined in the FDCPA.

To read the full client alert, please click here.

CFPB Proposes COVID-19 Rule to Amend Its Mortgage Servicing Rule and Provide Additional Guidance Related to the Pandemic

Jonathan K. Moore, Scott D. Samlin, Chenxi Jiao, and Louise Bowes Marencik

On April 5, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a notice of proposed rulemaking that proposes amendments to its Mortgage Servicing Rule (the “Proposed Rule”) to provide additional assistance for borrowers impacted by the COVID-19 emergency. The pandemic has resulted in nearly three million borrowers with delinquent mortgages, which is more homeowners in default than any time since the peak of the Great Recession in 2010. Nearly 1.7 million borrowers will exit forbearance programs in September and the following months upon expiration of the maximum term of 18 months in forbearance for federally backed mortgage loans. The Proposed Rule is intended to ensure that these homeowners have the opportunity to be evaluated for loss mitigation options prior to their loans being referred to foreclosure.

If finalized, the Proposed Rule would apply to all mortgages on a principal residence and amend Regulation X (12 CFR 1024).

To read the full client alert, please click here.

CFPB Proposes Delay of Effective Date for Debt Collection Rules

Jonathan K. Moore and Louise Bowes Marencik

On April 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a Notice of Proposed Rulemaking delaying the effective date of its recent debt collection final rules. The final rules, which were issued on October 30, 2020 and December 18, 2020, were scheduled to become effective on November 30, 2021. However, in light of the ongoing COVID-19 pandemic, the CFPB has proposed delaying the effective date until January 29, 2022, in order to give the affected parties additional time to review and comply with the new rules.

To read the full client alert, please click here.

NY Department of Financial Services Enforces First-in-the-Nation Cybersecurity Rules and Fines Mortgage Lender $1.5 Million for Failure to Comply

Andrea M. Roberts and Diana M. Eng

In March 2017, New York State’s Department of Financial Services (“DFS”) implemented the nation’s first cybersecurity rules requiring all regulated entities, such as banks, insurers, financial businesses, and regulated virtual currency operators, to fortify their cybersecurity protocols by implementing and maintaining cybersecurity policies (the “Cybersecurity Regulation”). These protocols and policies include, among other things, establishing a detailed security plan, increasing the monitoring of third-party vendors, appointing chief information security officers, and reporting breaches to the Superintendent of the Department of Finance within 72 hours of identifying a Cybersecurity Event.[1] The Cybersecurity Regulation is codified at 23 NYCRR 500.

For the second time, DFS has fined a regulated entity for failure to comply with the Cybersecurity Regulation. In March 2020, DFS commenced an examination of Residential Mortgage Services, Inc. (“Residential”), a Mortgage Banker (as defined in the Banking Law) based in Maine and licensed in New York. The examination encompassed a general compliance, safety, and soundness review, as well as compliance with the Cybersecurity Regulation. During the review, Residential disclosed for the first time a Cybersecurity Event, which had occurred nearly 18 months earlier. Specifically, an employee, who handles sensitive personal data, received a phishing e-mail and clicked on a hyperlink to a malicious website. DFS determined that although Residential’s technical support staff was alerted to the suspicious activity, Residential’s internal investigation was inadequate since it did not conduct any further inquiry after concluding the unauthorized access was limited to the employee’s e-mail account. Further, DFS determined Residential failed to satisfy the notification requirements of the Cybersecurity Regulation, as Residential failed to (i) identify whether the employee’s mailbox contained private consumer data during the breach and which consumers were impacted; and (ii) notify the Department of Finance within 72 hours of identifying a Cybersecurity Event. Finally, DFS determined that Residential was missing a comprehensive cybersecurity risk assessment, which should have led to the periodic evaluation of controls designed to protect nonpublic information and information systems.

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CFPB Issues Second Final Rule Clarifying Regulation of Fair Debt Collection Practices

Wayne Streibich, Jonathan K. Moore, and Louise Bowes Marencik

On December 18, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule concerning debt collection disclosures, which follows its October 30, 2020 final rule regarding debt collection communications. The two final rules implement and interpret the consumer protections set forth in the Fair Debt Collection Practices Act (“FDCPA”) of 1977. The final rules will both become effective on November 30, 2021.

The latest final rule outlines various requirements regarding debt collection disclosures. Specifically, a debt collector must send a written disclosure to a consumer containing information concerning the debt and actions the consumer may take in response, within five days of its initial communication with the consumer. This disclosure must be sent unless such validation information was provided in the initial communication or the consumer has paid the debt. The final rule includes a model validation notice, which, if used, provides a safe harbor for compliance with the disclosure requirements. The final rule also requires debt collectors to disclose the existence of a debt to the customer, orally, in writing, or electronically, before it can report information concerning the debt to a consumer reporting agency.

Please click here to read the full client alert.

New York’s Department of Financial Services Issues Regulation for Financial Institutions to Provide Relief to Consumers Suffering Financial Hardship Resulting from COVID-19 Pandemic

Wayne StreibichDiana M. Eng, Andrea M. RobertsScott D. Samlin

On March 21, 2020, in response to the COVID-19 pandemic, Governor Cuomo issued Executive Order 202.9, directing institutions regulated by New York’s Department of Financial Services (“NY DFS”) to provide financial relief to New York consumers experiencing financial hardship as a result of the pandemic. As a result, on March 24, 2020, NY DFS enacted Part 119 of Title 3 of the Official Compilation of Codes, Rules and Regulations of the State of New York (“NYCRR”) establishing standards and procedures that a “Regulated Institution” must follow in its review of requests for relief pursuant to Executive Order 202.9. Importantly, Section 119.2 defines a “Regulated Institution” as “any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.” (Emphasis added).

Highlights of the NY DFS Regulation1

Section 119.3 directs the Regulated Institution to do the following for any individual who can demonstrate financial hardship as a result of the COVID-19 pandemic:

  • In connection with a residential mortgage of a property located in NY: (i) make applications for forbearance of any payment due widely available to any individual who resides in NY and (ii) grant such forbearance for a period of 90 days (subject to the safety and soundness requirements of the Regulated Institution). This provision does not apply to, and does not affect mortgage loans “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.”
  • With respect to banking organizations: (1) eliminate fees charged for the use of ATMs that are owned or operated by the regulated banking organization; (2) eliminate any overdraft fees; and (3) eliminate any credit card late payment fees. (Regulated Institutions are not limited to these three requirements and may take additional actions if they so desire.)

Within ten (10) business days of the implementation of this regulation, i.e., by April 7, 2020, the Regulated Institution shall e-mail, publish on their website, mass mail, or otherwise broadly communicate to its customers how to apply for relief. The criteria, developed by the Regulated Institution, “shall be clear, easy to understand, and reasonably tailored to the requirements of the [R]egulated [I]nstitution to assess whether it will provide, consistent with the goals of Executive Order 202.9 and this regulation, applicable state and federal law, and the principles of safe and sound business practices, COVID-19 relief.” 3 NYCRR § 119.3(d)(1).

In addition, Section 119.3(e) outlines the requirements for processing applications for relief, as follows:

  • The Regulated Institution must process and respond to the request for relief no later than ten (10) business days after receiving all the information it needs to process the application;
  • The Regulated Institution must process the application for relief expeditiously; the Regulated Institution is responsible for developing and implementing the procedures to do so; and
  • Decisions on the application for relief shall be made in writing and provide the consumers the next steps if they are approved or denied the request.

Finally, Section 119.39(4) modifies Section 39 of the New York Banking Law concerning unsafe and unsound business practices. Under the modified section, it is an “unsafe and unsound business practice” if any Regulated Institution does not “grant a forbearance of any payment due on a residential mortgage for a period of ninety (90) days to any individual who has applied for such forbearance and demonstrated a financial hardship as a result of the COVID-19 pandemic as described herein.” NY DFS will consider, among other things, the adequacy of the process established by the Regulated Institution, the thoroughness of the review of the application, and the payment history, creditworthiness and financial resources of the borrower, in assessing whether a regulated institution has engaged in an unsafe or unsound practice. Regulated Institutions must also maintain copies of all files related to implementation of Part 119 for seven (7) years from March 24, 2020 (date of implementation of the regulation) and must make such files available for inspection at the NY DFS’ next examination of the Regulated Institution.

The standards and procedures set forth in Part 119 shall be in effect for ninety (90) days. After the expiration of the 90-day period, NY DFS will renew this emergency regulation, if necessary.

Conclusion

Regulated Institutions must implement processes and procedures to comply with Part 119 by April 7, 2020, including immediately setting up procedures to review applications for relief and taking the necessary steps to notify its customers of how to apply for such relief. Thus, Regulated Institutions should determine which of its loans, if any, are subject to this regulation and accept and review its customers for forbearance relief as described in the regulation.

Mr. Streibich would like to thank Diana M. Eng, Andrea M. Roberts, and Scott D. Samlin for their assistance in developing this alert.


1 This Alert provides the highlights of the regulation, which does not apply to any commercial mortgage or any other loans not described in the regulation. Please visit the NY DFS website for the complete regulation: dfs.ny.gov/system/files/documents/2020/03/re_new_pt119_nycrr3_text.pdf.

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.

Background

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.

Please click here for the full client alert. 

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.