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On May 7, the CFPB issued its Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). The Bureau also released a Fact Sheet on the Proposed Rule. The proposed effective date is one year after the final rule is published in the Federal Register, with comments on the Proposed Rule due 90 days after publication. Generally, the Proposed Rule covers debt collection communications and disclosures and addresses related practices by debt collectors. Highlights of the Proposed Rule include:
- Coverage. The Proposed Rule incorporates many existing provisions of the FDCPA into Regulation F including existing definitions of “debt collector” and “debt,” with only minor wording and organizational changes. The Proposed Rule would generally only cover third-party debt collectors, not the first-party efforts of the original creditor or its servicer, and specifically excludes in-house collectors of creditors (“[a]ny officer or employee of a creditor while the officer or employee is collecting debts for the creditor in the creditor’s name.”). The Proposed Rule restates the FDCPA’s definition of “consumer” but interprets the term to include “a deceased natural person who is obligated or allegedly obligated to pay a debt.” Additionally, with respect to the special definition of “consumer” for the section on communications in connection with debt collection, the Proposed Rule interprets that to include a confirmed successor in interest as well as the personal representative of a deceased consumer’s estate.
- Validation Notice. The Proposed Rule requires a debt collector to provide a consumer with a validation notice that includes certain information about the debt and the consumer’s rights with respect to the debt including: (i) the debt collector’s name and mailing address; (ii) the name of the creditor to whom the debt is currently owed and, for consumer financial product or service debt as defined in the Proposed Rule, the name of the creditor to whom the debt was owed on the itemization date; (iii) the itemization date and the amount of debt owed on that date; (iv) itemization of the current amount of the debt in a tabular format reflecting interest, fees, payments, and credits since the itemization date; (v) the current amount of the debt; (vi) if the debt is a credit card debt, the merchant brand, if any, associated with the debt, to the extent available to the debt collector; (vii) information about consumer protections; and (viii) consumer response information, including dispute prompts. The validation notice must also include the “debt collector communication disclosure” indicating the communication is for the purposes of collecting a debt.
- Disclosure Safe Harbor. Under the Proposed Rule, if a debt collector delivers in writing the Bureau’s Model Form B-3 validation notice, provided in appendix B to the Proposed Rule (available on pg. 491), it is considered to be in compliance with the validation notice requirements, though use of the model form is not required.
- Electronic Disclosures. The Proposed Rule would require debt collectors who provide required disclosures electronically to obtain the consumer’s affirmative consent directly to comply with Section 101(c) of the Electronic Signatures in Global and National Commerce Act (E-SIGN Act). In the alternative, debt collectors can send the electronic disclosures to a particular email address or phone number (in the case of text messages), that the creditor or prior debt collector could have with regard to that debt in accordance with the E-SIGN Act. Additionally, the Bureau released a flow chart to clarify how a debt collector would provide certain required disclosures electronically.
- Conduct Provisions.
- Time and Place Restrictions. The Proposed Rule clarifies that calls to mobile telephones and electronic communications, such as emails and text messages, are subject to the FDCPA’s prohibition on communicating at times or places that the debt collector knows or should know are inconvenient to the consumer, subject to certain exceptions.
- Restriction on Number of Telephone Calls. With exceptions for certain types of calls (such as those responding to a consumer request for information or made with prior consent by the consumer given directly to the debt collector), the Proposed Rule prohibits a debt collector from calling a consumer about a particular debt more than seven times within a seven-day-period. The Proposed Rule also prohibits a debt collector from calling a consumer for seven consecutive days after having had a telephone conversation with the consumer regarding the debt, beginning with the date of the conversation. A debt collector who does not exceed the frequency limits is deemed in compliance with the FDCPA’s prohibition on harassment and the Dodd-Frank Act’s prohibition on unfair acts or practices as it relates to telephone calls.
- Text and Email Communications. The Proposed Rule does not contain a restriction on the frequency or number of communications a debt collector can make via email or text message. However, the Proposed Rule requires a debt collector to include—in emails, text messages and other electronic communications—an option for the consumer to unsubscribe from future such communications and would prohibit a debt collector from attempting to communication through a medium the consumer has requested the collector not use, including a particular phone number or email address. The Proposed Rule would prohibit a debt collector from contacting a consumer through a workplace email address (absent prior consent by the consumer or receipt by the debt collector of an email sent from the consumer’s work email account) or through a public-facing social media platform, except through the platform’s private message function.
- Limited-Content Messages. The Proposed Rule specifies certain content parameters for a “Limited-Content Message” that a debt collector could send by voicemail or text that would not be considered a “communication” and therefore, would not need to include the required disclosures. Additionally, if the limited-content message was heard or observed by a third party, it would not constitute a prohibited third-party disclosure.
- Other prohibitions. The Proposed Rule prohibits a debt collector from, among other things, (i) suing or threatening to sue on a time-barred debt; (ii) reporting debts to credit reporting agencies prior to initiating communications with the consumer; and (iii) selling, transferring or placing for collection a debt to another debt collector that the collector knows or should know has been paid or settled, discharged in bankruptcy, or relates to a filed identity theft report.
Electronic contracting tools provide evidence and records necessary to undermine opposing affidavits
On April 3, the Court of Appeals of North Carolina upheld an agreement executed using a third-party electronic contracting service vendor, after finding that the agreement was ratified by the plaintiff’s conduct, even if an unauthorized employee executed it in the first instance. The plaintiff argued that it had never seen the contract and that an employee must have electronically signed the contract without authority. However, the defendant produced evidence and an affidavit showing that its electronic contracting vendor had sent the contract to the plaintiff’s email address, that the emails were viewed and the link to the contract was opened, and that the contract was electronically signed in the vendor’s system. The record also showed several other emails referencing the agreement sent to plaintiff and responses thereto by plaintiff. The court observed that “[w]ere this a more traditional contract negotiation, in which the parties had mailed proposed contracts back and forth, a sworn affidavit stating that [plaintiff] never reviewed or signed the contracts might be sufficient to create a genuine issue of material fact” as to plaintiff’s knowledge of the agreement and its terms, but in the electronic context, the affidavits and audit trails produced by the vendor foreclosed any genuine dispute that the plaintiff company had received the agreement and had knowledge of it before ratifying it through its actions.
The court, in upholding the agreement, reiterated that electronic contracts are still governed by traditional contract principles, including reasonable notice and unambiguous assent requirements. Because the agreement was made available, twice via hyperlink, and because the plaintiff acknowledged her awareness and assent of the agreement by clicking a button in the affirmative twice, the court held that the plaintiff had sufficient notice and had demonstrated adequate assent to the terms. This decision reinforces the effectiveness of electronic arbitration agreements and the use of hyperlinks to present documents, when presented in a manner consistent with underlying contract law.
On October 31, Fannie Mae issued Announcement SEL-2017-09, highlighting recent updates to its Selling Guide, that generally affirm the ability to conduct activity using electronic records. Among other things, the update (i) confirms that sellers and servicers are authorized to originate, service, and modify loans using electronic records; (ii) requires that validation and security measures be put in place for systems generating electronic records; (iii) specifies that recorded mortgages and deeds of trust are not required to be maintained in paper form; and (iv) clarifies that all electronic signatures must comply with ESIGN, the Uniform Electronic Transactions Act (UETA), and other applicable laws. The updates are effective immediately.
Additional changes address the (i) introduction of Fannie Mae’s Servicing Execution Tool and Servicing Marketplace, which are designed to improve transfers of servicing; (ii) clarification that property owned by inter vivos revocable trusts qualify as eligible collateral; and (iii) updates to policies related to mortgage debts paid by parties other than the borrower.
On October 11, Fannie Mae and Freddie Mac announced updates to their respective Servicing Guides.
Fannie Mae. Servicing Guide Announcement SVC-2017-09 highlights recent updates to the Servicing Guide, including topics related to the management of electronic transactions such as: (i) confirmation that sellers and servicers may originate, service, and modify loans using electronic records (electronic promissory notes require special approval); (ii) streamlined language clarifying requirements for the accuracy of information in electronic records; (iii) specification that paper records are not required for recorded mortgages and deeds of trust; (iv) clarification that all electronic signatures must comply with ESIGN, UETA, and other applicable laws; and (v) the removal of requirements for document custodians from the Servicing Guide that were duplicative of requirements set forth in Fannie Mae’s Requirements for Document Custodians. Additional updates address changes made to the reimbursement of foreclosure sale publication costs for costs incurred on or after January 1, 2018, and specific guidance for servicers pertaining to mortgage liens (to be implemented by December 1, 2017).
Freddie Mac. Freddie Mac issued Bulletin 2017-22 announcing servicing updates concerning (i) modifications to imminent default evaluation and process requirements (jointly developed with Fannie Mae) that will take effect July 1, 2018; and (ii) provisions under the Servicemembers Civil Relief Act (SCRA) related to compliance time frames for servicers when responding to, or submitting requests for, interest rate reductions, along with updates that take effect February 1, 2018, concerning Guide Exhibit 71 used by servicers to report eligible SCRA interest rate subsidized loans. The updates also eliminate the manual property condition certificate process and modify time frame requirements for cancelling property insurance policies on real estate owned properties.
On July 13 the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Electronic Transferable Records (MLETR). If broadly enacted by nations, the MLETR would provide uniform legal framework for the use of electronic records in connection with transferable records—including bills of lading, bills of exchange, promissory notes and warehouse receipts. By establishing uniform standards under which electronic records of such documents may be the equivalent to paper, the MLETR has the potential to streamline international commerce and provide a higher level of security over paper documents. The model law, among other things, addresses standards for establishing control of an electronic record as the equivalent of possession of a paper instrument, as well as guidance for establishing the reliability of systems and methods used for the generation and transfer of such records. Like the UETA and ESIGN in the United States, the MLETR is meant to be technology-neutral and is designed to work within the framework of existing laws governing transferable records. The full text of the final MLETR and an accompanying Explanatory Note (akin to official comments) will be available here.
On May 10, Fannie Mae announced it would begin accepting copies of electronically recorded mortgages rather than original wet-signed documents. This follows a prior September 2016 announcement from Freddie Mac, which changed its policy on the electronic recording of paper closing documents.
Fannie Mae. As set forth in Section A2-5.2-01 of its Servicing Guide, Fannie Mae says that electronic records may be delivered and retained as part of an electronic transaction by the seller/servicer to the servicer, document custodian or Fannie Mae, or by a third party, as long as the methods are compatible with all involved parties. Additionally, the electronic records must be in compliance with the requirements and standards set forth in ESIGN and, when applicable, the Uniform Electronic Transactions Act, as “adopted by the state in which the subject property secures by the mortgage loan associated with the electronic record is located.”
Freddie Mac. A bulletin released last September updated Sections 1401.14 and 15 of Freddie Mac’s Servicing Guide by removing the requirement that a seller/servicer retain the original paper security instrument signed by the borrower if an electronic copy of the original security instrument is electronically recorded at the recorder’s office, provided the following conditions are met:
- The seller securely stores along with the other eMortgage documents either (i) “the electronically recorded copy of the original security instrument,” or (ii) “the recorder’s office other form of recording confirmation with the recording information thereon”; and
- Storage of the original security instrument signed by the borrower is not required by applicable law.
According to Freddie Mac, “Removing this requirement addresses one of the barriers for eMortgage adoption in the industry, permitting more [m]ortgage file documents to be [e]lectronic and reducing some storage costs for [s]eller/[s]ervicers.”
Back in July, the United States bankruptcy court for the Eastern District of California held that under its local rules, an attorney submitting electronically signed documents for filing with the court must maintain an originally signed document in paper form bearing a “wet” signature. In re Mayfield, No. 16-22134-D-7, 2016 WL 3958982 (U.S. Bankr. Ct. E.D. Cal.). The United States Trustee (UST) filed a motion for sanctions against a debtor’s attorney who used the an electronic signature platform to have the debtor execute certain documents that were subsequently filed with the court. The court’s local rules 9004-1(C) and (D) provide that if these documents were executed with a “software-generated electronic signature,” the submitting attorney is required to maintain “an originally signed document in paper form” and produce it upon request by the UST. When asked by the UST to produce the original signed versions of the documents he filed, the debtor’s attorney was unable to do so. In response to the motion, the debtor’s attorney argued that the requirements of 9004-1(C) and (D) did not apply because the electronic signatures were manually created by the debtor’s actions taken on the electronic signature platform. As such, they were not “software-generated electronic signatures” within the meaning of the rule, and under the federal ESIGN Act constituted “original” signatures.
Ultimately, the court held that: (i) the ESIGN Act was not applicable because of the express exemption for court rules at 15 USC § 7003(b)(1), thereby permitting the court to establish and interpret its own rules with respect to electronic signatures, (ii) the electronic signatures created using the platform were within the meaning of the term “software-generated electronic signature” under the local rules, and (iii) the local rule’s reference to “an originally signed document in paper form” required the attorney to also maintain a copy of the document bearing a “wet ink” signature. Accordingly, the Court granted the UST’s motion and, as the sanction imposed, required the debtor’s attorney to certify completion of the court’s online e-filing training course.
Recently, the British Columbia Labour Relations Board (Board) issued a decision accepting a trade union’s application under the Labour Relations Code, which was submitted using electronically signed membership cards. Although the Board found that the union’s use of the Adobe E-Sign software was in compliance with the Electronic Transactions Act, it only accepted three of the four e-signed cards that were submitted. The three cards it approved were completed using the “draw function” of Adobe E-Sign, which allows the user to use a finger or stylus to physically sign a touch screen device. In contrast, the Board did not accept the fourth card because it used the “type function” of the software instead, analogizing it to “a pen and paper printed block signature in quotation marks.”
According to the Board, the fact that the E-sign software contained mandatory fields for the employee’s name, signature, and date provided assurance that the cards were signed and dated at the time of signature. In the event that E-sign programs other than Adobe are used, the Board cautioned that it “will expect a similar demonstration of [membership signatures’] reliability and authenticity with regard to date and signing of the cards before the application for certification process is completed.” It further cautioned that e-sign applicants will be expected to identify the audit trail for electronic signatures at the time applications are filed.
On July 25, the Law Society of England and Wales released a practice note on the use of electronic signatures when executing commercial contracts in a business context. Developed by a joint working party of the Law Society, the City of London Law Society, and leading City law firms, the practice note is intended to provide industry participants with greater clarity on the relevant laws surrounding the use of e-signatures on commercial contracts. According to Law Society Company Law Committee chairperson Elizabeth Wall, the practice note “will help the industry get comfortable with electronic signatures and embrace the practice benefits of e-signing.”
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