On October 2, 2017, the CFPB amended the 2013 Mortgage Servicing Rules, again. Why did the CFPB feel compelled to further amend the rules? You guessed it. The CFPB is hopelessly trying to reconcile the Fair Debt Collection Practices Act (FDCPA) and the Mortgage Servicing Rules (hereafter such rules and amendments shall be referred to as the “Mortgage Rules”). Mortgage servicers, in some situations, are subject to the FDCPA. The FDCPA was passed by Congress in the 1970s to regulate communications between debtors and debt collectors. In 2013, the CFPB issued the 2013 Mortgage Rules (with multiple and substantial amendments since 2013) to regulate, at the molecular level, how and when a servicer communicates with borrowers, who are behind on their mortgage. The Mortgage Rules amount to thousands of pages of rules regulating communications between a mortgage servicer and a delinquent borrower.


The FDCPA was passed by Congress to essentially prohibit debt collectors from harassing debtors. Conversely, the Mortgage Rules were promulgated by the CFPB to foster, facilitate and encourage communication between servicers and delinquent borrowers in the hopes that borrowers can avoid foreclosure. Put another way, the FDCPA is intended to limit communications between debt collectors and debtors while the Mortgage Rules are intended to promote communication between servicers and borrowers. The FDCPA and the Mortgage Rules are irreconcilable at their core. For another example of how these two bodies of law are irreconcilable, look no further than the recently issued October 2, 2017 Mortgage Rule.


The October 2, 2017 Mortgage Rule amends Regulation X, Section 1024.39(d)(3)(iii). Before we can understand this rule, it is unfortunately necessary to get into the Mortgage Rule weeds and discuss Section 1024.39(b)(1). Section 1024.39(b)(1) was issued by the CFPB in 2013 and requires a servicer to send a letter to a borrower before the borrower becomes 45 days delinquent on her mortgage loan (hereafter the “Early Intervention Letter”). The purpose of this letter is to encourage the borrower to contact the servicer to discuss how the loan might be brought current and to let the borrower know work-out options may exist if bringing the loan current is not an option. Section 1024.39(b)(1) also requires the servicer to send this same letter to the borrower if the borrower remains delinquent after 180 days have passed since the date of the Early Intervention Letter (hereafter this letter shall be referred to as the “Subsequent Early Intervention Letter”).


There are many reasons why the rollout of this very simple Early Intervention Letter has become so troublesome for the CFPB over the last five years. One major reason is the FDCPA. The FDCPA requires debt collector servicers to cease communications with a borrower if the borrower demands the servicer do so. As a result, one might think that if a delinquent borrower demands that a servicer cease all communications, then the servicer is prohibited from sending the Early Intervention Letter and Subsequent Early Intervention Letter, right? Not so fast. Instead of taking the logical, much simpler approach, the CFPB decided to issue more rules after 2013 to attempt to reconcile the FDCPA cease communication rules with the Section 1024.39(b)(1) Early Intervention Letter. In 2016, the CFPB issued rules to “clarify” a servicer's obligation when it receives a cease communication demand from a delinquent borrower and the borrower remains 45 days delinquent. Through the 2016 amendments to the Mortgage Rules, the CFPB required servicers to effectively ignore a borrower's cease communication demand and send the Early Intervention Letter, and where applicable, the Subsequent Early Intervention Letter. Therefore, as a result of the 2016 amendments, servicers are required to send the Subsequent Early Intervention Letter 180 days after sending the Early Intervention Letter when a borrower is at least 45 days delinquent even if the borrower has demanded the servicer cease all communication. Unfortunately, the 2016 “clarification” only created more problems.


In the summary of the October 2, 2017 rule, the CFPB states that amending Section 1024.39(d)(3)(iii) is necessary because the 2016 rule requires the servicer to send the Subsequent Early Intervention Letter precisely on the 180th day after sending the Early Intervention Letter. Or, in CFPB parlance, requiring servicers to send the Subsequent Early Intervention Letter exactly on the 180th day was not the CFPB's intent, and it is “concerned that 1024.39(d)(3)(iii) imposes too narrow a window for compliance and could cause legal risk for servicers.”

So, what exactly does the October 2, 2017 rule require? In short, if a borrower has invoked her cease communication rights under the FDCPA, and is still delinquent after 180 days from when the Early Intervention Letter was sent, then the servicer must send the Subsequent Early Intervention Letter sometime between 180 to 190 days from the date of the Early Intervention Letter. The October 2, 2017 rule becomes effective October 19, 2017.

In a nutshell, the CFPB has spent millions of taxpayer dollars to make sure servicers send a delinquent borrower a letter requesting that the borrower contact them to discuss resolving the delinquent account. Sadly, it did not have to be so confusing and expensive. With respect to the specific conflict between the FDCPA cease communication rule and the Early Intervention Letter, the CFPB could have simply left the 2013 rule intact which honored the borrower's cease communication demand nullifying the requirement that servicers send the Early Intervention Letter.

More broadly, the CFPB should stop trying to reconcile the FDCPA and the Mortgage Rules, and instead issue an Interpretive Rule confirming that communications between servicers and delinquent borrowers are exclusively and completely governed by the Mortgage Rules, and therefore, servicers are exempt from the FDCPA when communicating with delinquent borrowers. As these exhausting amendments show, it is futile to try to reconcile the FDCPA and the Mortgage Rules, and until the CFPB comes to this realization, American taxpayers will be the ones suffering the consequences.