The Consumer Financial Protection Bureau (CFPB or Bureau) released a new interim final rule intended to clarify how mortgage servicers can communicate with borrowers at risk of foreclosure, as well as a proposed rule about bankruptcy communications.

What happened

In 2016, the CFPB published the Mortgage Servicing Final Rule, amending Regulation X. Pursuant to the changes, servicers were required to send written notices—known as early intervention notices—to certain consumers at risk of foreclosure who requested a cease in communications under the Fair Debt Collection Practices Act (FDCPA).

While consumers have the right under the FDCPA to ask companies to stop contacting them (except for limited purposes), the CFPB’s amendments also required mortgage servicers to send notices every 45 days to borrowers who become delinquent to inform them of the available foreclosure prevention options, although the notices may not be sent more than once in a 180-day period.

As part of the Bureau’s implementation efforts, members of the industry expressed concern that the 180-day prohibition, when read in conjunction with other timing requirements regarding notices, technically required mortgage servicers to provide the notice exactly on the 180th day after providing a prior notice.

“The Bureau did not intend this result and is concerned that the provision imposes too narrow a window for compliance and may provide insufficient guidance as to when and how servicers comply with the timing requirements under certain circumstances,” the CFPB explained, particularly when the 180th day falls on a Saturday, Sunday or public holiday. “Thus … the Bureau is issuing this interim final rule … to give servicers a 10-day window to provide the modified notice at the end of the 180-day period.”

Given the Oct. 19, 2017, effective date for the 2016 Mortgage Servicing Final Rule, the CFPB released the change as an interim final rule set to take effect the same day. The Bureau asked for feedback on the new ten-day window and said it will consider whether to revisit it based on any comments received.

“The Bureau believes that a 10-day window at the end of the 180-day period affords servicers sufficient time to provide the notice while also ensuring that servicers provide the subsequent notice in a timely way, maximizing a borrower’s opportunities to pursue loss mitigation and avoid further delinquency,” according to the interim final rule. “The Bureau believes that this amendment will offer greater certainty for implementation and compliance, while also not undermining borrower protections.”

In a second change, the Bureau proposed to amend certain 2016 Mortgage Service Final Rule Regulation Z mortgage servicing requirements relating to the timing for servicers to transition to providing modified or unmodified periodic statements and coupon books in connection with a consumer’s bankruptcy case. Industry advised the CFPB that certain technical aspects of the rule were creating unintended challenges in implementation and were potentially subject to different legal interpretations.

After one of several triggering events occurs that results in a servicer needing to transition to or from providing bankruptcy-specific disclosures to a borrower, Regulation Z includes a single-billing-cycle exemption from the requirement to provide a periodic statement or coupon book. But the exemption applies only if the payment due date for that billing cycle is no more than 14 days after the triggering event.

The Bureau proposed to revise Regulation Z to replace the single-billing-cycle exemption with a single-statement exemption that would apply regardless of when in the billing cycle the triggering event occurs.

“The Bureau believes that these proposed changes would provide a clearer and more straightforward standard than the timing requirement adopted in the 2016 Mortgage Servicing Final Rule, offering greater certainty for implementation and compliance, without unnecessarily disadvantaging consumers,” according to the proposed rule.

To read the interim final rule on mortgage servicer communication, click here.

To read the proposed rule on periodic statements, click here.

Why it matters

“Today’s action should make it easier for mortgage borrowers to receive timely information from their mortgage servicers about available options for saving their home, even if they have submitted a request to cease communication,” CFPB Director Richard Cordray said in a statement. “In addition, we are proposing changes to clear up confusion about when to provide periodic statements with important loan information to borrowers in bankruptcy.” The CFPB asked for comment on both the interim final rule and the proposed rule on periodic statements. Although these changes are not major, industry representatives have noted the CFPB’s willingness to respond when such technical issues causing uncertainty with respect to implementation of the rules in the field have been identified.