FDCPA Safe Harbor Buried within CFPB Mortgage Rules

On August 4, 2016 the Consumer Financial Protection Bureau (CFPB) released a rule providing safe harbors from liability under the FDCPA for certain actions taken in compliance with mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).

According to the interpretive Rule, servicers that are debt collectors would enjoy safe harbors from liability in three situations:

1. Servicers do not violate FDCPA section 805(b) when communicating about the mortgage loan with confirmed successors in interest in compliance with specified mortgage servicing rules in Regulation X or Z
2. Servicers do not violate FDCPA section 805(c) with respect to the mortgage loan when providing the written early intervention notice required by Regulation X § 1024.39(d)(3) to a borrower who has invoked the cease communication right under FDCPA section 805(c)
3. Servicers do not violate FDCPA section 805(c) when responding to borrower-initiated communications concerning loss mitigation after the borrower has invoked the cease communication right under FDCPA section 805(c)

The Bureau has determined that this rule is exempt from notice and comment rulemaking requirements under the Administrative Procedure Act pursuant to 5 U.S.C. 553(b).

The rule becomes effective 12 months from the date of publication in the Federal Register, which has not yet happened. insideARM contacted the CFPB to confirm the exact date when the rule will be in effect; we were told it generally takes about five business days for shorter rules like this to be published.

insideARM Perspective

It is very interesting that the CFPB has published a rule specifically providing safe harbor for certain debt collection activities. Perhaps this suggests that there could be similar treatment for other rules affecting debt collection which conflict with communications that are important for consumers to receive, even if they have made a cease communication request.

A few examples that come to mind include:

• Right to Cure Notices as required by a number of states (applicable to a variety of types of consumer debts such as mortgage, auto, furniture, and others)
• Notice of acceleration of a debt (notice that the debt is in default and all future payments will become due at once)
• Payment reminders to third parties
• Monthly and quarterly statements now required by New York in association with a payment arrangement
• Statement of Rights as contemplated by the Outline of Proposed Debt Collection Rules, which states that a collector would be required to re-send the Statement of Rights in the first communication made more than 180 days after the initial validation notice
• If a cease request is made in writing, all collection efforts made until the cease is received
• If a consumer is represented by an attorney, any communication with the consumer until consumer communicates a name and phone number of the attorney
• If a dispute or validation request is coupled with a cease communication request, the collector should be able to respond to the validation request in writing
• If a settlement is coupled with a cease request, the collector should be able to communicate with the consumer regarding the settlement
• Cease requests are only applicable to the debt stated in the specific cease request

Separate from Cease Requests, other safe harbors such as letter templates, would balance consumer notification against debt collection risks. For example:

• Collection letters with mandated wording (for instance, regarding an accruing debt balance due to interest and collection costs, as required by the Second Circuit case Avila v. Riexinger & Associates, LLC)
• The litigation disclosure as contemplated by the Outline of Proposed Debt Collection Rules, which states that a collector must notify the consumer of the intention to sue.

Meanwhile, First Party rulemaking is underway. This will be especially interesting as it relates to creditors, should the CFPB choose to apply the FDCPA (or parts of it) to actions of “First Parties.”