CFPB Provides Some Relief to Mortgage Servicers Communicating with Borrowers, But Questions Remain


After years of confusion, mortgage servicers now have a final, straightforward rule regarding exemptions to the new requirement to provide consumers in bankruptcy with periodic statements. Although the new rule on exemptions provides some relief, it remains unclear whether certain information provided to a consumer in a periodic statement exposes a servicer to liability for improper debt collection.

Last week, the Consumer Financial Protection Bureau published its final rule clarifying a limited exemption to the new rules requiring mortgage servicers to provide modified periodic statements to consumers in bankruptcy. Instead of the single-billing-cycle exemption finalized in the 2016 Mortgage Servicing Rule, the Bureau is implementing a much more straightforward single-statement exemption. The new exemption is a positive development for mortgage servicers: it significantly reduces the burden to provide compliant statements immediately after a consumer enters bankruptcy, which will help limit exposure to potential litigation from consumers raising violations of the bankruptcy stay, Fair Debt Collections Practices Act (FDCPA), or state consumer protection statutes.

Next month, the second phase of the 2016 Rule goes into effect, including the new regulations pertaining to periodic statements provided to consumers in bankruptcy. Starting April 19, 2018, Regulation Z will no longer contain the blanket exemption for providing statements to consumers in bankruptcy. Instead, servicers will now be required to provide to some consumers in bankruptcy a statement containing certain bankruptcy-specific modifications.

To give servicers time to adjust their systems to provide compliant statements once they learn of a consumer’s bankruptcy, the Bureau initially proposed and finalized a single-billing-cycle exemption in the 2016 Rule. In the original exemption, a servicer was exempt from the requirement to provide a statement to a consumer for a “single billing cycle.” The original exemption only applied, however, when the payment due date for that billing cycle was no more than 14 days after a specific triggering event, such as when a consumer on the mortgage loan becomes a debtor in bankruptcy.

After issuing the 2016 Rule, the Bureau learned that industry leaders were finding the single-billing-cycle exemption difficult to interpret and implement. As a result, the Bureau proposed a new rule last October replacing the single-billing-cycle exemption with a single-statement exemption. Now, once a triggering event occurs, such as a new bankruptcy filing, servicers will be exempt from the requirement to provide the next statement, but must resume providing compliant statements starting with the next billing cycle.

The new, clarified exemption provides some relief to mortgage servicers who have been working to limit exposure to litigation stemming from its attempts to communicate with consumers in bankruptcy. In the past, the blanket exemption in Regulation Z provided servicers with some protection. But mortgage services may still have questions about what content should or should not go into a mortgage statement. Do some statements simply provide consumers with information concerning their debt? Or do those statements amount to an improper attempt to collect debt in violation of the Bankruptcy Code, the FDCPA, or state consumer protection statutes? At the very least, the new exemption helps servicers by giving them more time to modify statements before being exposed to liability

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