The CFPB's charge from Congress, as set forth in the Dodd-Frank Act, which was passed in 2010, is to protect consumers in the financial services area. In 2014, the CFPB issued over 1000 pages of rules primarily intended to assist borrowers who are delinquent on their mortgage loans. Many of the rules have been beneficial because they have assisted delinquent borrowers in obtaining more specific information about the amount they owe, and they have created standardization and uniformity among mortgage servicers and investors in the area of loss mitigation and loan workouts; however, if the CFPB genuinely wants to assist delinquent borrowers avoid foreclosure, it still has a very long way to go.
I wrote last month about how certain provisions of the Fair Debt Collection Practices Act (the “FDCPA”) actually make it more difficult for borrowers to reinstate their delinquent loans. The CFPB is the regulator charged with implementing rules and guidance with respect to federal consumer finance statutes, such as the FDCPA. The CFPB was established 7 years ago but for some inexplicable reason, it has chosen not to take action to resolve the harm suffered by consumers as a result of the FDCPA. Last month's article discussed how particular provisions of the FDCPA make it more difficult for borrowers to obtain meaningful reinstatement and payoff quotes, and ultimately bring their loans current and avoid foreclosure. The purpose of this article is to highlight other harm to mortgage consumers as a result of the FDCPA.
Section 1692c(b) of the FDCPA essentially prohibits a debt collector from communicating with a third party in connection with a consumer's debt. The 2014 mortgage servicing rules, mentioned above, mandate that mortgage servicers conduct extensive outreach to delinquent borrowers to help them avoid foreclosure and resolve their delinquency. Oftentimes, a mortgage servicer's communication with a delinquent borrower is subject to the FDCPA. Servicers have a vested interest in assisting delinquent borrowers reinstate because they, and the investors they serve, are much more likely to earn a profit when loans are current and performing. In other words, it is imperative for servicers to reach out to delinquent borrowers, not only because the rules require it, but because their very existence demands it.
HOW THE CFPB'S INACTION HARMS CONSUMERS
Oftentimes, as a part of borrower outreach, servicers call delinquent borrowers and reach voice mail. As stated above, Section 1692c(b) of the FDCPA prohibits a debt collector servicer from communicating with a third party in connection with a borrower's debt. So, what should a servicer do when it reaches a borrower's voice mail? That's easy. Just leave a message stating who you are; the company you are with; that you are calling about their mortgage loan; and ask the consumer to call you back. What's the problem? The problem is Section 1692e(11) requires a debt collector to disclose in written and verbal communications with debtors that it is a debt collector and the call is about the collection of a debt. The challenge with voice mail is that if a party other than the borrower hears the 1692e(11) disclosure, the servicer has just violated Section 1692c(b) of the FDCPA and is subject to statutory damages and attorney's fees.
The only practical option for a servicer is to hang up the phone and not leave a message. As a result, borrowers are unaware that a servicer has tried to contact them to discuss alternatives to foreclosure. Because the borrower outreach was unsuccessful, the loan continues to accrue interest and other fees and costs making it even more difficult for borrowers to reinstate their loans and avoid foreclosure. The CFPB could cure this harm to consumers but chooses to do nothing.
The CFPB should promulgate rules or issue guidance clarifying that mortgage servicers are authorized to leave voice mail messages in order to fulfill the mandates set forth in the 2014 mortgage rules, and that leaving messages is not a violation of the FDCPA. In other words, the CFPB should create a safe harbor similar to the safe harbor it created when it issued rules earlier this year that a servicer communicating with a confirmed successor in interest is not liable under Section 1692(c)b.
The more logical and expansive fix is for the CFPB to acknowledge that the purpose of the 2014 mortgage servicing rules is to regulate and foster proactive communications between servicers and delinquent borrowers, and that the communication rules set forth in the FDCPA irreconcilably conflict with the purpose of the 2014 mortgage rules. In accordance with its rule making authority, the CFPB should clarify that communications between servicers and delinquent borrowers are exclusively regulated by the 2014 mortgage rules, and because such communication rules conflict with the FDCPA rules, communications between servicers and borrowers are exempt from FDCPA regulation.
Unfortunately, the CFPB sits on its hands while delinquent borrowers suffer the consequences.