Can online lead generation be done compliantly under Section 8 of the Real Estate Settlement Procedures Act? The answer is yes, but it is important to navigate the impermissible activities recently identified by the Consumer Financial Protection Bureau. On February 7, 2023, the CFPB issued long-awaited guidance in an advisory opinion addressing how it interprets
Real Estate Settlement Procedures Act (RESPA)/Regulation X
RESPA Hot Topics: Marketing Alliances in a Competitive Mortgage Market
High rates and a steep reduction in mortgage refinance applications have created stiff competition for the origination of purchase-money mortgages. Settlement service providers often seek creative strategic alliances to help secure more business. Companies can refer to recent informal guidance from the Consumer Financial Protection Bureau relating to marketing services agreements and other promotional opportunities.
Mortgage Servicing “Notices of Error” – Does The Catch-All Catch It All?
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.
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First CFPB Supervisory Highlights Issued Under Director Chopra Cites “Wide-Ranging Violations of Law”
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.
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”
CFPB Announces Return to Mortgage Servicing Enforcement
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.
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CFPB Replaces Cordray-Era MSA Guidance with New RESPA Section 8 FAQs
The Real Estate Settlement Procedures Act is ambiguous, and compliance often turns on the facts of arrangements. For that reason, settlement service providers have been asking the Consumer Financial Protection Bureau for guidance since it took responsibility for RESPA nearly 10 years ago. These calls were amplified when Section 8 of RESPA was an early…
Mayer Brown Lawyers Featured at MBA Regulatory Compliance Conference
Several of Mayer Brown’s Consumer Financial Services partners will be featured at the upcoming Regulatory Compliance Conference in Washington DC, sponsored by the Mortgage Bankers Association.
On Sunday, September 22, Tori Shinohara will address Fair Lending and Equal Opportunity Laws.
On Monday, September 23, Phil Schulman will address marketing and advertising activities in compliance with…
Mayer Brown Headlines MBA’s Legal Issues Conference
Many of Mayer Brown’s Consumer Financial Services partners will be featured at the upcoming Legal Issues and Regulatory Compliance Conference in New Orleans, sponsored by the Mortgage Bankers Association.
On Sunday, May 5, Kris Kully will help guide attendees through the basics of the Truth in Lending Act, as part of the conference’s Certified Mortgage…
BCFP Releases New Guidance on Major Disasters and Emergencies
Last week the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued guidance on the operations of financial institutions and other supervised entities in the wake of major disasters and emergencies. The guidance explains that supervised entities have flexibility under the existing regulatory framework to take action that could benefit affected consumers.
This is not the first time the Bureau has issued guidance on this topic. Last year, the Bureau released a statement on Hurricanes Harvey and Irma and another on Hurricane Maria. Unlike the prior guidance, the statement released last week does not address a particular emergency or disaster but applies to emergencies in general.
The new guidance echoes prior guidance by providing examples in which regulations allow flexibility. For instance:
- Although RESPA’s Regulation X generally prohibits residential mortgage servicers from offering a loss mitigation option to borrowers based on an evaluation of an incomplete application, the guidance notes servicers may nonetheless offer short-term loss mitigation options. Because it could be difficult for consumers impacted by a disaster to obtain and submit the necessary documents to complete a timely application, this exception may allow servicers to better assist those borrowers.
- Although ECOA’s Regulation B generally requires creditors to provide first-lien loan applicants with copies of appraisals or other written valuations promptly upon completion, or three business days prior to consummation or account opening, whichever is earlier, the guidance notes that the applicant generally may waive that timing requirement and agree to receive the copy at or before consummation or account opening (except where otherwise prohibited by law). That exception may allow supervised entities to give consumers impacted by a disaster quicker access to credit.
Unlike prior guidance that expressly “encouraged” supervised entities to take these steps, this latest guidance only states that supervised entities are permitted to use the flexibility. …
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Mayer Brown at MBA’s Regulatory Compliance Conference in Washington
As the Mortgage Bankers Association gathers for its Regulatory Compliance conference next week in Washington, DC, Mayer Brown’s Consumer Financial Services group will be addressing all the hot topics.
Melanie Brody will be talking about the Equal Credit Opportunity Act (ECOA) on a panel called “Fair Lending and Equal Opportunity Laws” on Sunday, September 16.…