United States: CFPB Issues Interim Final Rule Amending Time Requirement For Servicers To Send Subsequent Early Intervention Notices

On October 4, the Consumer Financial Protection Bureau issued an interim final rule which will amend a portion of the 2016 Mortgage Servicing Final Rule for Regulation X of the Real Estate Settlement Procedures Act. Specifically, the interim rule will amend the amount of time mortgage servicers have under amended § 1024.39(d)(3)(iii) to "provide modified written early intervention notices to borrowers who have invoked their cease communication rights under the [Fair Debt Collection Practices Act]." See CFPB, Amendments to the 2016 Amendments to the 2013 Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), Oct. 2, 2017, at 5.

In 2016, the CFPB issued a final rule which amended multiple provisions of Regulation X of RESPA and Regulation Z of the Truth in Lending Act. § 1024.39(d) of Regulation X was amended to narrow the early written notice exemption for FDCPA-subject servicers to instances where there are no loss mitigation options available or if the borrower is in bankruptcy. See Early intervention requirements for certain borrowers, 81 Fed. Reg. 72,373 (Oct. 19, 2016) (to be codified at 12 C.F.R. § 1024.39(d)). For those FDCPA-subject servicers who are no longer exempt from the early notice requirement, the amendment requires these servicers to provide modified disclosures, and it also prohibits these servicers from providing the written notice more than once during a 180-day period. See 12 C.F.R. § 1024.39(d)(3)(i)-(iii). The 180-day prohibition was meant to protect repeatedly-delinquent borrowers who had invoked their cease communication rights under the FDCPA from receiving multiple unwanted communications from a servicer. See CFPB, Amendments to the 2013 Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), Aug. 2, 2016, at 280. The 2016 Final Rule also modified § 1024.39(b) to require servicers to send further written notices to cover instances in which a borrower makes a payment on the loan but remains in a state of delinquency during the 180-day period after the first notice is sent. See 81 Fed. Reg. 72,373 (Oct. 19, 2016) (to be codified at 12 C.F.R. § 1024.39(b)(1)).

Following publication of the 2016 Final Rule, the CFPB received remarks from servicers regarding the 180-day prohibition on sending written notices. The servicers expressed concern that the 180-day prohibition of amended § 1024.39(d)(3)(iii) created an issue where an FDCPA-subject servicer would not have enough time to send a subsequent written notice within the time period prescribed in amended § 1024.39(b)(1). This incompatibility between the two provisions of § 1024.39 could create a situation in which a borrower makes a payment to a servicer during the 180-day period but because the servicer is prohibited from sending any subsequent notices to the borrower, it must wait until the expiration of the 180-day period to send another notice as required in amended § 1024.39(b)(1). Since § 1024.39(b)(1) requires the servicer to send a subsequent notice no later 180 days after the first notice is sent, the FDCPA-subject servicer would have to send the subsequent written notice on the 180th day after the first notice was sent, which could be on a weekend or holiday. In admitting that this type of situation was an unforeseen consequence of the 2016 Final Rule, the interim rule will provide for a ten-day safe harbor period at the end of the 180-day period for FDCPA-subject servicers to send out subsequent written notices per amended § 1024.39(b)(1).

The interim final rule took effect on October 19. The CFPB will forego the usual 30-day window between publication and adoption of proposed rules but it is still requesting public comments.

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