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Financial Services Law Insights and Observations


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  • CFPB warns debt collectors on “zombie mortgages”

    Agency Rule-Making & Guidance

    On April 26, the CFPB issued an advisory opinion affirming that the FDCPA and implementing Regulation F prohibit covered debt collectors from suing or threatening to sue to collect time-barred debt. As such, a debt collector who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt may violate federal law, the Bureau said. The agency stated that numerous consumers have filed complaints relating to “zombie second mortgages,” where homeowners, operating under the assumption that a mortgage debt was forgiven or was satisfied long ago by loan modifications or bankruptcy proceedings, are contacted years later by a debt collector threatening foreclosure and demanding payment of the outstanding balance along with interest and fees.

    The Bureau explained that, leading up to the 2008 financial crisis, many lenders originated mortgages without considering consumers’ ability to repay the loans. Focusing on “piggyback” mortgages (otherwise known as 80/20 loans, in which consumers took out a first lien loan for 80 percent of the value of the home and a second lien loan for the remaining 20 percent of the home’s valuation), the Bureau stated that most lenders did not pursue payment on the second mortgage but instead sold them off to debt collectors. Years later, some of these debt collectors are demanding repayment of the second mortgage and threatening foreclosure, the Bureau said, adding that for many of the mortgages, the debts have become time barred. The Bureau commented that, in most states, consumers can raise this as an affirmative defense to prevent a debt collector from recovering on the debt using judicial processes such as foreclosure. Additionally, because “Regulation F’s prohibition on suits and threats of suit on time-barred debt is subject to a strict liability standard,” a debt collector that sues or threatens to sue “violates the prohibition ‘even if the debt collector neither knew nor should have known that a debt was time-barred,’” the Bureau said. The advisory opinion clarified that these restrictions apply to covered debt collectors, including individuals and entities seeking to collect defaulted mortgage loans and many of the attorneys that bring foreclosure actions on their behalf.

    CFPB Director Rohit Chopra delivered remarks during a field hearing in Brooklyn, New York, in which he emphasized that the Bureau will work with state enforcement agencies to take action against covered debt collectors who break the law. He reminded consumers that they can also sue debt collectors themselves under the FDCPA.

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Finance Debt Collection Mortgages FDCPA Regulation F

  • OCC rescinds FDCPA section of booklet

    On December 15, the OCC announced that the Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance adopted revised examination procedures for the FDCPA and its implementing regulation, Regulation F. Among other things, the revised interagency examination procedures incorporate the CFPB's 2020 and 2021 FDCPA that went into effect in November 2021. The announcement noted that the agency is rescinding the “Fair Debt Collection Practices Act” section of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller's Handbook. The revised interagency examination procedures address, among other things: (i) determinations of whether a bank is a debt collector under the FDCPA and Regulation F; (ii) prohibitions on certain communications with consumers in connection with debt collection; and (iii) requirements for a reasonable and simple method that consumers can use to opt out of additional communications and attempts to communicate.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance OCC FDCPA Regulation F CFPB Comptroller's Handbook Examination Debt Collection

  • District Court rules model validation is not required under FDCPA


    On October 13, the U.S. District Court for the Central District of Illinois granted a debt collector’s motion to remand a case back to state court in an FDCPA suit. According to the order, the plaintiff collected unpaid debts for a hospital (defendant) for approximately 15 years. The terms of the formalized agreement established a one-year term that was set to renew automatically so long as the parties agreed to its terms. The agreement required the plaintiff to comply with various laws and regulations, including the FDCPA, and regulations by the CFPB. In November 2021, Regulation F, promulgated by the CFPB, took effect, which clarified a provision of the FDCPA by requiring debt collectors to convey in their initial communications with debtors the debtors’ right to dispute the debt. The order further noted that after the Bureau “provided notice of its intent to enact Regulation F and the public comment period ended, [the plaintiff] ‘began working with its third-party software provider and third-party letter printer to modify [the plaintiff’s] initial contact letter to reflect the safe harbor model in Regulation F.’” However, the defendant was not able to ensure the changes were made before the regulation took effect. The defendant sent the plaintiff a letter declaring that it was in breach of the agreement since it failed to use the safe-harbor model language. The defendant asserted that the plaintiff’s “failure to use the safe-harbor model amounted to a violation of Regulation F and the FDCPA.” The letter requested that the plaintiff terminate all collection activity on the defendant’s accounts. The plaintiff filed suit, seeking a declaratory judgment that the letter it was using complied with the FDCPA. The defendant removed the case to federal court, and the plaintiff filed a motion to remand. The court found that using model notice language is not required under the FDCPA or Regulation F. The court noted that “[a] debt collector may comply by using a different form so long as the required information is provided in a clear and conspicuous manner.” The court further noted that the alleged federal issue in the claim “is not substantial enough” to warrant keeping the case in federal court and granted the plaintiff’s motion to remand the case back to state court.

    Courts FDCPA Debt Collection Model Valuation Regulation F CFPB

  • CFPB warns debt collectors on “pay-to-pay” fees

    Agency Rule-Making & Guidance

    On June 29, the CFPB issued an advisory opinion to state its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees for making payments online or by phone. “These types of fees are often illegal,” the Bureau said, explaining that its “advisory opinion and accompanying analysis seek to stop these violations of law and assist consumers who are seeking to hold debt collectors accountable for illegal practices.” 

    These fees, commonly known as convenience fees, are prohibited in many circumstances under the FDCPA, the Bureau said. It pointed out that allowable fees are those authorized in the original underlying agreements that consumers have with their creditors, such as with credit card companies, or those that are affirmatively permitted by law. Moreover, the Bureau stressed that the fact that a law does not expressly prohibit the assessment of a fee does not mean a debt collector is authorized to charge a fee. Specifically, the advisory opinion interprets FDCPA Section 808(1) to permit collection of fee only if: (i) “the agreement creating the debt expressly permits the charge and some law does not prohibit it”; or (ii) “some law expressly permits the charge, even if the agreement creating the debt is silent.” Additionally, the Bureau’s “interpretation of the phrase ‘permitted by law’ applies to any ‘amount’ covered under section 808(1), including pay-to-pay fees.” The Bureau further added that while some courts have adopted a “separate agreement” interpretation of the law to allow collectors to assess certain pay-to-pay fees, the agency “declines to do so.”

    The Bureau also opined that a debt collector is in violation of the FDCPA if it uses a third-party payment processor for which any of that fee is remitted back to the collector in the form of a kickback or commission. “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”

    As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.

    Agency Rule-Making & Guidance Federal Issues CFPB Advisory Opinion Fees Junk Fees Consumer Finance FDCPA Regulation F Debt Collection

  • CFPB updates debt collection examination procedures to include Regulation F provisions

    Agency Rule-Making & Guidance

    Recently, the CFPB updated its debt collection examination procedures to incorporate provisions of Regulation F (the FDCPA’s implementing regulation). As previously covered by InfoBytes, in October 2020, the Bureau issued its final rule (effective November 30, 2021) amending Regulation F to address debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. Following the publication of the final rule, the Bureau also released debt collection compliance guidance and frequently asked questions that address validation information generally and validation information related to residential mortgage debt (covered by InfoBytes here). The Bureau noted that depending on the scope of an examination, “and in conjunction with the compliance management system and consumer complaint response review procedures,” an examination will cover at least one of the following modules: (i) entity business model; (ii) communications in connection with debt collection; (iii) information sharing, privacy, and interactions with consumer reporting agencies; (iv) validation notice, consumer FDCPA disputes and complaints, and ceasing communication; (v) payment processing and account maintenance; (vi) ECOA; and (vii) litigation practices, administrative wage garnishment and repossession, and time-barred debt.

    Agency Rule-Making & Guidance CFPB Debt Collection FDCPA Regulation F Examination

  • CFPB publishes Regulation F debt collection compliance guidance

    Agency Rule-Making & Guidance

    On October 29, the CFPB released information on validation notices to help facilitate compliance with requirements in the Regulation F debt collection final rule. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule (effective November 30) amending Regulation F, which implements the Fair Debt Collection Practices Act, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The CFPB released guidance for debt collectors offering instructions on how to provide certain validation information, including using the “Itemization Table” in the model validation notice as well as examples of how the table might be completed for different types of debts. The guidance also provides, among other things, examples of itemization tables for the collection of multiple debt owned by the same consumer.

    The Bureau also issued new FAQs related to Regulation F that address validation information generally and validation information related to residential mortgage debt. Among other things, the FAQs: (i) specify the validation information debt collectors must provide consumers who owe or allegedly owe a debt; (ii) clarify that while the use of the model validation notice provided in Appendix B of the final rule is not required, debt collectors must comply with the validation information content and format requirements in Regulation F; (iii) specify that a debt collector can make changes to the model validation notice and still obtain the validation information content and format safe harbor with certain limitations; (iv) state that a debt collector does not need to provide the itemization-related information in a validation notice provided the debt collector follows a special rule for certain residential mortgage debt; (v) outline validation information that may be omitted if using the Mortgage Special Rule, and clarify that generally if a debt collector uses the Mortgage Special Rule with the model validation notice, the debt collector may still receive a safe harbor as long as certain criteria is met; (vi) define “most recent periodic statement” for purposes of the Mortgage Special Rule; and (vii) clarify that under the Mortgage Special Rule, a debt collector “uses the date of the periodic statement provided under that Special Rule as the itemization date.” As previously covered by InfoBytes, the Bureau issued FAQs last month discussing limited-content messages and the call frequency provisions under the Debt Collection Rule in Regulation F.

    Agency Rule-Making & Guidance CFPB Debt Collection Regulation F Compliance Mortgages

  • CFPB releases Spanish-language model validation notice for debt collectors

    Agency Rule-Making & Guidance

    Recently, the CFPB issued a Spanish-language translation of its Model Validation Notice. Debt collectors are permitted to send a consumer a completely and accurately translated validation notice if the consumer was either provided an English-language version in the same communication or in a prior communication. Debt collectors that meet these requirements and use the translated notice qualify for the Debt Collection Rule’s safe harbor that any translation be complete and accurate. The Bureau noted that the translated validation notice omits the disclosure informing consumers of their right to request the validation notice in Spanish, “because no translation of those disclosures is necessary,” but debt collectors who choose to include the optional Spanish-language disclosures in a Spanish-language validation notice are still eligible for the safe harbor.

    Agency Rule-Making & Guidance CFPB Consumer Finance Debt Collection Regulation F Validation Notice Limited English Proficiency

  • CFPB releases debt collection FAQs

    Federal Issues

    On October 1, the CFPB released a set of FAQs discussing limited-content messages and the call frequency provisions under the Debt Collection Rule in Regulation F. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule amending Regulation F, which implements the Fair Debt Collection Practices Act, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. Among other things, the FAQs clarify: (i) the qualifications of a “limited-content message”; (ii) that debt collectors can utilize a pre-recorded voice message for limited-content messages; (iii) that the final rule “establishes a presumption of a violation of, and a presumption of compliance with, the prohibition against harassing, oppressive, or abusive conduct, based on the frequency of a debt collector’s telephone calls and conversations”; (iii) that the final rule “does not preempt a state law that affords greater protection to consumers, including, for example, by imposing limits or more restrictive presumptions related to telephone call frequency”; (iv) that seven days is the maximum time a consumer’s direct prior consent applies to additional telephone calls; and (v) the factors that may rebut the presumption of a violation.

    Federal Issues CFPB Debt Collection Regulation F Agency Rule-Making & Guidance FDCPA

  • Supreme Court lifts federal eviction moratorium


    On August 26, the U.S. Supreme Court issued a 6-3 decision in Alabama Association of Realtors et al. v. U.S. Department of Health and Human Services et al. to lift the federal government’s eviction moratorium, stating the CDC lacked authority to impose the ban. This decision follows the Court’s June decision, which previously denied the group’s request to lift the eviction moratorium in order to let the ban expire at the end of July as intended to allow for a “more orderly distribution of the congressionally appropriated rental assistance funds.” (Covered by InfoBytes here.) In agreeing with the group’s argument that the law on which the CDC relied upon did not allow it to implement the current ban, the majority held that “[i]t strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts,” pointing out that, as the Court noted in its June decision, “[i]f a federally imposed eviction moratorium is to continue, Congress must specifically authorize it.” This decision vacates a stay on the U.S. District Court for the District of Columbia’s judgment placed by the same court and renders the district court’s judgment enforceable. As previously covered by InfoBytes, the district court ruled that the CDC exceeded its authority when it imposed the temporary ban and stated that because the Public Health Service Act (PHSA) does not “grant the CDC the legal authority to impose a nationwide eviction moratorium” the moratorium must be set aside.

    The dissenting judges faulted the Court for deciding the issue without full briefing and argument, arguing that a stay entered by a lower court cannot be vacated “unless that court clearly and ‘demonstrably’ erred in its application of ‘accepted standards.’” Among other things, they pointed out that “it is far from ‘demonstrably’ clear that the CDC lacks the power to issue its modified moratorium order” as the CDC’s current, modified order targets only regions experiencing a spike in transmission rates. They further argued that the PHSA’s language authorizes the CDC “to design measures that, in the agency’s judgment, are essential to contain disease outbreaks,” and that “the balance of equities strongly favors leaving the stay in place.” According to the minority, “public interest strongly favors respecting the CDC’s judgment at this moment, when over 90% of counties are experiencing high transmission rates.”

    Notably, the decision impact’s the CFPB’s interim final rule (Rule) amending Regulation F to require all landlords to disclose to tenants certain federal protections put in place as a result of the ongoing Covid-19 pandemic (covered by InfoBytes here). As previously covered by InfoBytes, the U.S. District Court for the Middle District of Tennessee denied a request in May for a temporary restraining order to block the Rule, but noted however, that “by its own terms the Rule applies only during the effective period of the CDC Order, only to tenants to whom the CDC Order reasonably might apply, and only in jurisdictions in which the CDC Order applies. Defendant CFPB has opined, in its response to the Motion, that ‘the Rule’s provisions—by the Rule’s own operation—have no application where the CDC Order, on account of a court order or otherwise, does not apply.’ . . . The Court concurs with this view, and it intends to hold CFPB to this view (and believes that other courts perhaps should do likewise).”

    Courts U.S. Supreme Court Covid-19 CDC Consumer Finance Evictions CFPB Regulation F

  • CFPB issues debt collection small entity compliance guide

    Agency Rule-Making & Guidance

    On January 15, the CFPB issued a small entity compliance guide summarizing the Bureau’s debt collection rule. As previously covered by InfoBytes, the Bureau issued a final rule last October amending Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), to address debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The guide provides a detailed summary of the October final rule’s substantive prohibitions and requirements, as well as a summary of key interpretations and clarifications of the FDCPA. The Bureau noted, however, that the current small entity compliance guide does not discuss (unless specifically noted otherwise) the CFPB’s final rule issued in December (covered by InfoBytes here), which clarified consumer disclosure requirements, provided a model validation notice, and addressed required actions prior to furnishing and prohibitions concerning the collection of time-barred debt. Updates will be made to the small entity compliance guide at a later date to include provisions related to the December final rule.

    Agency Rule-Making & Guidance CFPB Compliance Debt Collection FDCPA Regulation F


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