On the heels of the release of the final amendments to its new mortgage rules, the CFPB issued a bulletin and interim final rule giving mortgage servicers additional guidance about mortgage servicing rules that will take effect in January 2014. The CFPB’s latest guidance addresses, among other things, communications with family members after a borrower dies, contact with delinquent borrowers, and treatment of consumers that have filed for bankruptcy or invoked certain protections under the Fair Debt Collection Practices Act (“FDCPA”). Perhaps the most significant aspect of the CFPB’s bulletin is its discussion of the interplay between the new servicing rules, the bankruptcy code, and the FDCPA, creating what amounts to an exemption to “case communication” requirements under the FDCPA. In the bulletin, the CFPB provided the following important clarification:

  • “Even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to the FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act are still required. Specifically, servicers must communicate with the borrower with regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages, and periodic statements. However, servicers will not be required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them.”

The CFPB concluded that the FDCPA “cease communication” option does not generally make servicers that are debt collectors liable under the FDCPA if they comply with certain provisions of Regulation X (12 CFR 1024.35 (error resolution), 1024.36 (requests for information), 1024.37 (force-placed insurance), and 1024.41 (loss mitigation)) and Regulation Z (12 CFR 1026.20(d) (adjustable-rate mortgage (ARM) initial interest rate adjustment) and 1026.41 (periodic statement)). The CFPB also concluded that a servicer that is considered a debt collector under the FDCPA and provides disclosures to and communicates with the borrower pursuant to the provisions listed above, notwithstanding a “cease communication” instruction sent by the borrower, is not liable under the FDCPA. This conclusion does not extend to the notices/communications required by 12 CFR 1024.39 (Early Intervention Rule) and 12 CFR 1026.20(c) (ARM Interest Rate Adjustment with Corresponding Payment Change Rule).

In recent years, creditors and debt collectors (including certain mortgage servicers) have had to be increasingly vigilant to avoid liability under the FDCPA. The exemption discussed above may provide additional clarity and comfort, but mortgage servicers should also be cautious that future rulemaking on debt collection may alter or eliminate this exemption.

The editors and contributors of this update, include; David N. AnthonyJohn C. LynchAlan D. WingfieldMichael E. LacyScott KellyS. Mohsin Reza.