Consumer Financial Protection Bureau (CFPB)

Mortgage loan servicers have a wide range of responsibilities. However, does everything servicers do constitute “servicing”? Or do servicers do some things that are not “servicing”?

The answer is important because the Real Estate Settlement Procedures Act and its Regulation X impose strict obligations on servicers to respond to certain borrower communications related to “servicing,” but not to nonservicing. The courts, including two recent federal courts of appeals, are drawing fine lines between the two.

RESPA requires a mortgage loan servicer to respond in a timely manner to a borrower’s request to correct errors relating to “allocation of payments, final balances for purposes of paying off the loan, or avoiding foreclosure, or other standard servicer’s duties.” Section 1024.35 of Regulation X specifies that a servicer must acknowledge, investigate, and respond to a borrower’s “notice of error” within strict timeframes, so long as the notice is in writing and provides enough information for the servicer to identify the account and the asserted error. In addition, after receipt of a notice of error, a servicer is prohibited, for 60 days, from furnishing adverse information to a consumer reporting agency regarding any payment that is the subject of the notice.

Section 1024.35 then provides a list of covered errors that are subject to those requirements. The list includes errors that could arise in typical servicing activities – errors related to the acceptance, application, or crediting of borrower payments; and to disbursing amounts for taxes, insurance premiums, or other charges. The list of covered errors also includes those that could arise in default servicing – errors related to providing information regarding loss mitigation options, making foreclosure notices or filings, moving for foreclosure judgments or orders of sale, or conducting foreclosure sales.

Then, the Consumer Financial Protection Bureau (“CFPB”) included a catch-all provision to section 1024.35, such that a covered error includes “any other error relating to the servicing of a borrower’s mortgage loan.”

Courts have been considering the scope of those responsibilities since even before the CFPB issued that list in 2013. Recently, two circuit courts of appeals have indicated that some activities of servicers do not constitute “servicing,” particularly where loan modifications are involved.
Continue Reading Mortgage Servicing “Notices of Error” – Does The Catch-All Catch It All?

On February 23, 2022, the US Consumer Financial Protection Bureau (“CFPB” or “Bureau”) took the first step in an eventual rulemaking by publishing an outline of proposals and alternatives under consideration to prevent algorithmic bias in automated valuation models (AVMs). AVMs are software-based tools used to determine the value of real estate as an alternative

The upshot, for busy people:

  • The Consumer Financial Protection Bureau (CFPB) can sue companies in federal court or in its in-house administrative proceedings. Although the CFPB regularly announces settlements styled as administrative proceedings, it has rarely held administrative trials or other contested enforcement proceedings in that forum.
  • On February 22, 2022, and without an accompanying press release, the CFPB published in the Federal Register a number of changes to its in-house adjudication procedures. Some changes are administrative—how to count days, etc.  But others clarify and expand the powers Director Rohit Chopra has to shape proceedings, including to bifurcate remedial and liability determinations and to decide all dispositive motions.
  • These procedural changes don’t alter any of the CFPB’s substantive rules. But these changes do signal that the agency may start bringing enforcement cases in-house, where Director Chopra will decide what does and does not violate the law.


Continue Reading CFPB Issues Revised Administrative Litigation Procedures, Signaling Possible Increase in In-House Adjudications

A district court has dismissed a challenge to the Consumer Financial Protection Bureau’s (“CFPB”) repeal of the underwriting provisions of its 2017 payday rulemaking. The CFPB’s payday lending rule has a long and tortured history. First promulgated in 2017, the rule had two main prohibitions—a prohibition on making payday loans without assessing a borrower’s ability

Earlier this week, the Consumer Financial Protection Bureau (“CFPB”) won an important court ruling in a long-running case against student loan securitization trusts. The case has a long (and for the CFPB, somewhat ignoble) history. The CFPB first filed suit against 15 Delaware statutory student loan securitization trusts (the “Trusts”) in September 2017. The complaint

Earlier this week, the Consumer Financial Protection Bureau released the Fall 2021 edition of its Supervisory Highlights (“Supervisory Highlights” or “Report”). This marks the first edition issued under Director Rohit Chopra, President Biden’s pick to head the agency. The press release accompanying this edition of Supervisory Highlights cites “wide-ranging violations of law” and asserts that “irresponsible or mismanaged firms harmed Americans during the COVID-19 pandemic,” statements that signal that the Chopra-led Bureau is taking an aggressive approach to supervision and is scrutinizing supervised entities closely.

Supervisory Observations

This edition of Supervisory Highlights covers examinations completed between January 2021 and June 2021 and identifies violations in eight areas: credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. As is the Bureau’s common practice, the Report refers to institutions in the plural even if the related findings pertain to only a single institution.

  • Credit Card Account Management. The Report details several findings related to credit cards, including violations of Regulation Z and the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”). With respect to Regulation Z, Bureau examiners determined that creditors failed to comply with requirements related to billing errors. Specifically, the Bureau details alleged failures concerning the timing of resolving notices of billing errors (within two complete billing cycles), reimbursing late fees when payment had not been credited to an account, and conducting reasonable investigations based on consumer allegations of missing payments and unauthorized transactions. The Report indicates that creditors are working to identify and remediate affected customers and develop training on Regulation Z’s billing error resolution requirements for employees.

The Bureau also alleged deceptive practices relating to the marketing of credit card bonus offers in two separate instances. First, examiners determined that credit card issuers engaged in deceptive acts by failing to provide advertised bonuses to existing customers who satisfied the bonus program requirements of opening a new account and meeting the spending requirements. Moreover, the Bureau noted that issuers failed to ensure employees followed procedures to enroll existing consumers correctly. Second, the examiners determined that issuers also engaged in deceptive acts when their advertising to consumers failed to disclose or adequately disclose material information about qualifying for the bonus. In this situation, the bonus was tied to applying for the card online, so consumers who otherwise satisfied advertised requirements, but applied through a different channel, did not receive the bonus. In response to these findings, issuers are modifying applicable advertisements and undertaking remedial and corrective actions.

  • Debt Collection. According to the Report, examiners found that larger participant debt collectors were at risk of violating the Fair Debt Collection Practices Act (“FDCPA”) as it relates to using false representations or deceptive means to collect a debt. The Report explained that debt collectors, in the context of discussing the consumer restarting a payment plan, represented that making the final payment of the plan would improve the consumer’s creditworthiness. The Bureau, however, indicated that this could lead the least sophisticated consumer to assume that deleting derogatory information would result in improved creditworthiness, when in fact numerous factors influence a consumer’s creditworthiness and making a final payment may not necessarily improve a person’s credit score. As a result of the findings, the debt collectors revised their FDCPA policies and procedures and enhanced their training and monitoring systems.


Continue Reading First CFPB Supervisory Highlights Issued Under Director Chopra Cites “Wide-Ranging Violations of Law”

Recent developments indicate that credit reporting concerns are likely to be at the forefront of the CFPB’s agenda in the coming months. Last month, CFPB Director Rohit Chopra spoke before the House Committee on Financial Services and discussed several key topics, including credit reporting issues. Earlier this month, the CFPB published a report called “Disputes on Consumer Credit Reports” that discusses trends in consumer credit disputes and how such disputes are resolved. Shortly after the CFPB published its report, a group of Democratic senators sent a letter to Director Chopra, urging the CFPB to address credit reporting issues within the industry. This blog post highlights some of the key points in Director Chopra’s testimony, the CFPB report, and Senate Democrats’ letter to Director Chopra.

Continue Reading Credit Reporting in the Crosshairs?

Mortgage servicers should prepare for increased scrutiny of their default servicing activities.  Earlier this week, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and state financial regulators, issued a statement that the agencies would resume their full supervision and enforcement of mortgage servicers, ending the flexible approach the agencies announced at the onset of the COVID-19 pandemic.  This move is consistent with the Bureau’s March 2021 rescission of similar statements issued during the pandemic that provided temporary flexibilities to financial institutions.
Continue Reading CFPB Announces Return to Mortgage Servicing Enforcement

Statistics obtained through a FOIA request confirm what everyone expected – an uptick in CFPB enforcement activity that coincides with the beginning of the Biden Administration. Last year, we reported on statistics showing the number of new enforcement investigations opened every fiscal year through FY2019. Those statistics showed that new enforcement investigations had dropped significantly

Three federal agencies announced a coordinated settlement today with a Mississippi-headquartered bank for allegedly redlining predominantly Black and Hispanic neighborhoods in the Memphis, Tennessee area. The action was the result of the OCC’s examination of the bank’s lending activities from 2014 to 2016. The OCC found that the bank had engaged in a “pattern or