CFPB’s Upcoming Debt Collection Proposed Rule: What to Expect on Timing

CFPB’s Upcoming Debt Collection Proposed Rule: What to Expect on TimingThe Consumer Financial Protection Bureau (CFPB) previously indicated in its Fall 2018 Rulemaking Agenda that it intends to issue a Notice of Proposed Rulemaking (NPRM) in the Spring of 2019 regarding debt-collection practices and the Fair Debt Collection Practices Act (FDCPA). The regulatory agenda also suggests that the proposed rule may be released as soon as March 2019. We have previously written about the topics and issues the CFPB may address through this particular rulemaking.

While we wait for the long-anticipated Notice of Proposed Rulemaking to be released—hopefully any day now—we thought we would take a look at how the CFPB has handled prior significant rulemakings in terms of the length of comment periods, how long the CFPB contemplates comments before issuing final rules and how long the CFPB usually gives the industry to implement the applicable changes. To do that, we looked at applicable dates for the following rulemakings:

  • 2013 Mortgage Servicing Rules;
  • ECOA Valuations Rule;
  • LO Comp;
  • TRID;
  • ATR/QM;
  • Prepaid Cards; and
  • Payday Lending Rule.

For each of the above-referenced rulemakings, we gathered the following data points:

  • Date of Notice of Proposed Rulemaking;
  • Date Comments Due Regarding Notice of Proposed Rulemaking;
  • Date of Final Rule; and
  • Effective Date of Final Rule.

For simplicity, and in order to get a sense of what to expect when the debt collection Notice of Proposed Rulemaking is released, we did not consider any comment due dates or final rule effective dates that were subsequently extended for one reason or another. Instead, we relied upon the initial date selected by the CFPB. For example, TRID and the Prepaid Cards rule both had various effective date extensions. In those instances, our analysis only relied upon what the CFPB originally intended in terms of an implementation period.

Based upon this information, it appears that the CFPB typically gives around 54 days for the public to submit comments on its larger rulemakings. Once the comment period closes, it typically takes approximately nine and a half months for the CFPB to issue a final rule with an effective date almost 10 months later.

Based upon those historical figures alone, it appears likely that the CFPB will offer the public close to two months to consider and comment on the Notice of Proposed Rulemaking. The final rule may then be issued approximately one year after the Notice of Proposed Rulemaking is issued. It would also not be unusual for the CFPB to give the industry a significant implementation period. If the proposed rule is released at some point in March 2019, we likely are looking at an effective date for a final debt collection rule in early 2021.

FHA Expands Program to Accelerate Financing of Low-Income Housing Tax Credit Multifamily Housing Projects

FHA Expands Program to Accelerate Financing of Low-Income Housing Tax Credit Multifamily Housing ProjectsThe mission of the U.S. Department of Housing and Urban Development (HUD) is, in part, to bolster the economy by strengthening the housing market, protecting consumers, and working to meet the needs for quality affordable rental homes. To further this mission, the Federal Housing Administration (FHA) launched a pilot program in 2012 to streamline mortgage insurance applications for Section 223(f) Program projects with equity from the sale of Low-Income Housing Tax Credits (LIHTC). The Section 223(f) Program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing.

This FHA pilot program was a success, and the FHA is now moving to build on that success. On February 21, 2019, the FHA expanded the pilot program to include new construction and substantial rehabilitation of multifamily housing under its Section 221(d)(4) and Section 220 Programs.

Section 221(d)(4) insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily rental or cooperative housing for moderate-income families, the elderly and the disabled. Section 220 insures loans for multifamily housing projects in urban renewal areas, code enforcement areas and other areas where local governments have undertaken designated revitalization activities.

This expanded pilot program is designed to increase the speed and efficiency of processing mortgage insurance applications for low-risk LIHTC transactions. Currently, the average processing time for LIHTC deals is approximately 90 days. Under this expanded pilot, processing times are reduced by up to 60 days. This drastic decrease allows borrowers to lock in interest rates more quickly, an especially important tool in an environment with rising interest rates.

FHA multifamily transactions that include LIHTCs make up approximately 30 percent of the FHA’s total multifamily volume. This expanded pilot program, now covering programs under Sections 221(d)(4), 220 and 223(f), is expected to increase the amount of FHA-supported production and preservation of affordable multifamily housing.

In addition to encouraging investment in affordable multifamily housing broadly, the expanded pilot program will encourage investments in low-income urban and rural communities and support development in Opportunity Zones. Opportunity Zones are census tracts in low-income communities experiencing economic distress. This action represents one of a host of programs offered by the federal government to address the crisis in the shortage of affordable housing.

 

Major Data Privacy Changes at Tech Companies Are a Sign of the Times

Major Data Privacy Changes at Tech Companies Are a Sign of the TimesRecently there have been a string of announcements from large tech companies about a shift in focus from open platforms to more privacy-focused communications systems. This represents a sea change for the industry, which has historically been depicted as data hungry and privacy starved. The change highlights just how far public opinion has evolved in the United States in recent years.

The move of large tech companies to more privacy-centric platforms coincides with a broader move toward a nationwide data privacy standard. Currently California’s ambitious data privacy law, the California Consumer Privacy Act of 2018 (CCPA), dominates the privacy landscape. Outside of California, several other states are already using the California law as a model for new state-level privacy laws. Nationally, there is also a move to address privacy issues. For instance, the Consumer Data Protection Act, a bill sponsored by Sen. Ron Wyden (D-OR), would create a set of minimum cybersecurity and privacy standards and proposes a national “Do Not Track” system. It would also establish a right for the consumer to know what personal data is being collected and how it’s being used. This follows another high-profile privacy bill floated in December called the Data Care Act of 2018. That bill would introduce a “duty to care” approach to regulation and would expand the Federal Trade Commission’s ability to enforce privacy rules. These proposed bills were followed by an independent report last month released by the Government Accountability Office recommending that Congress develop comprehensive internet privacy legislation. And on February 26, 2018, the House Subcommittee on Consumer Protection and Commerce held a hearing titled “Protecting Consumer Privacy in the Era of Big Data.” During the hearing, House Republicans seem to agree on the need for a nationwide data privacy standard. However, they were not enthusiastic about emulating existing regulations such as the CCPA, which they view as unduly burdensome.

Although the U.S. regulatory landscape continues to inch along, the speed at which public opinion is evolving should lead business to analyze  privacy practices and proactively build out more robust privacy controls, both as a function of expanding regulation and as an accommodation to evolving consumer expectations.

HUD Drastically Cuts Advance Notice for REAC Inspections

HUD Drastically Cuts Advance Notice for REAC InspectionsYou are the property manager for a HUD-subsidized apartment development. One day, the owner of the development rushes into your office, visibly frantic. The owner says, “We just received a letter from HUD’s Real Estate Assessment Center (REAC) that REAC inspectors have scheduled the property for an inspection.” You respond, “Don’t worry — with extensions we have at least 120 days before the REAC inspectors arrive.” The owner replies, “No, the inspection is scheduled 14 days from today.”

On February 20, 2019, the U.S. Department of Housing and Urban Development (HUD) announced it is drastically reducing the advance notice it provides to public housing authorities (PHAs) and private owners of HUD-subsidized apartment developments. The new notice standard is 14 calendar days – a major reduction from the 120 days HUD used to give owners and developers.

As rationale for the change, HUD expressed concern that the 120-day lead time allowed certain public housing authorities and private property owners to undertake cosmetic “just-in-time” repairs to properties rather than continuous maintenance programs. HUD Secretary Ben Carson stated in the PIH Notice release that “[i]t’s become painfully clear to us that too many landlords whom we contract with were using the weeks before their inspection to make quick fixes, essentially gaming the system.”

Secretary Carson further explained, “[t]he action we take today is part of a broader review of our inspections so we can be true to the promise of providing housing that’s decent, safe and healthy for the millions of families we serve.” To that end, HUD also announced a nationwide listening tour to gather input from the public and HUD stakeholders that is focused on a forthcoming pilot program to test new approaches to inspecting HUD-assisted properties.

How can you learn more?

If you have additional question on this topic, please reach out to the authors of this blogpost at hwright@bradley.com, aholland@bradley.com, or cfriedman@bradley.com. Heather Wright and Austin Holland will also be attending the Tennessee Housing Conference in Nashville on March 6 and 7, 2019. They will be available to discuss HUD’s significant reduction in advance notice for REAC inspections or other questions regarding regulatory compliance in affordable housing.

Ohio Mortgage Servicing Update

The Ohio Division of Financial Institutions (DFI) recently provided the much-needed updates to the recent legislation that expanded the registration requirements under the Ohio Residential Ohio Mortgage Servicing UpdateMortgage Lending Act (RMLA). The bill, HB 489, was passed unanimously in December 2018 and signed by Gov. Kasich in his last days in office. The expanded RMLA will now require companies that engage in mortgage servicing activities in Ohio to obtain a certificate of registration. The expansion of the RMLA now extends to both direct mortgage servicers and entities that merely hold mortgage servicing rights (MSRs).

Effective Date

Although there is not an official effective date yet, if companies apply for a Certificate of Registration by March 31,, 2019, the DFI will not take any action for unlicensed activity, even if the registration process is not complete before the effective date. The application checklist is now on the NMLS, and we note that the process and requirements are very similar to previous application requirements.

Existing Companies

Companies that currently hold a RMLA Certificate of Registration for mortgage origination activities must update their business activities on the NMLS by the end of the year to indicate that they will engage in mortgage servicing in Ohio. Practically though, this should be updated prior to renewal so that renewal filings and attestations will be accurate.

No In-State Office Requirement

There is no Ohio in-state office requirement with the new changes to the RMLA. Several third parties have suggested that in-state office requirements may exist under the RMLA. This confusion is a holdover from the previous language modification made under HB199 in 2017. That change brought the registration of mortgage lenders and mortgage brokers, as well as the licensing of mortgage loan originators, under one act, Ohio Revised Code 1322 (i.e., the Ohio Residential Mortgage Lending Act). Bob Niemi, Senior Advisor with Bradley’s Financial Services team, was heavily engaged in the 2017 language modification  process while working with the Ohio Mortgage Bankers Association. The language was intended to require registration for all locations within the state of Ohio where residential mortgage activities take place. It was not intended to require registered entities to maintain an in-state office requirement, and the latest changes do not impose such a requirement.

Existing Requirements

The existing requirements of the RMLA, including registration of branches, will apply to mortgage servicers under HB 489 with one general exception. A company applying for a new Certificate of Registration as a mortgage servicer must designate an Operations Manager. However, the DFI has stated that if the company only engages in servicing activities and will not engage in mortgage origination or brokering activities, the operations manager will not be required to be a licensed Ohio mortgage loan originator.

We encourage you to contact Bob Niemi, Amy Magdanz Rose or Haydn Richards for additional review of activities and assistance in meeting the application and compliance dates required by this new change in Ohio law.

5 Tips to Consider When Performing Your Social Media Risk Assessment – Attend Our Upcoming Webinar to Learn More

5 Tips to Consider When Performing Your Social Media Risk Assessment – Attend Our Upcoming Webinar to Learn MoreAccording to the Pew Research Center’s Social Media Use in 2018, 73 percent of adults in the United States use at least one type of social media, and the typical American uses three. For 18 to 29 year olds, 80 percent use some form of social media. Given its prevalence, social media affords financial services institutions a unique opportunity to engage with consumers directly to provide information on products and services that consumers find interesting and to resolve consumer issues in real time. Forward thinking institutions are able to effectively utilize social media as a driving force for business generation and customer retention. But, social media also comes with a great deal of compliance risk for financial institutions. In 2013, the Federal Financial Institutions Examination Council (FFIEC) issued guidance highlighting some of the legal and compliance risks from social media use and requiring financial services companies to establish a “risk management program that allows [them] to identify, measure, monitor, and control the risks related to social media.” Set forth below are some items to consider when developing or updating your company’s social media risk management program.

1. Understand how your company is using or intends to use social media

Social media, like letters, emails, telephone calls, text messages, or advertisements, is merely a vehicle for interacting with consumers. While the use of social media can raise some unique issues, social media use is governed by the same laws and regulations that generally govern how financial services companies interact with consumers (e.g., ECOA, FCRA, RESPA, TILA, etc.). As a result, compliance and legal professionals should begin any risk assessment by understanding how the company uses or intends to use social media, as the company’s use of social media will drive the analysis. For example, if your company plans to use Facebook ads to introduce a new loan product, you should consider whether you have satisfied the various advertising requirements scattered across federal law and whether you have taken appropriate steps to address any fair lending concerns.

2. Remember that each social media platform is unique

Social media is often discussed as a broad topic, but compliance and legal professionals should not lose sight of the fact that each platform has its own unique features. For example, some social media platforms require users to attest that they are at least 13 years of age. The presence or absence of this type of assertion can impact how a company approaches compliance with the Children’s Online Privacy Protection Act (COPPA), which imposes specific obligations regarding the collection, use, and disclosure of a child’s personal information.

3. Consider compliance risks posed by social media’s unique features

Social media is a powerful tool because it allows companies to (1) engage in rich back-and-forth interactions with consumers; (2) quickly and directly communicate with significant numbers of consumers; and (3) utilize powerful data. However, the very features that make social media a powerful tool create compliance risks. For example, Facebook has recently faced allegations of discriminatory advertising based on the way it uses consumer data to target advertisements. While these allegations are directed at Facebook rather than the individual advertisers, they highlight the need to understand how social media companies use their data when advertising for your company.

4. Be mindful that you are not interacting with consumers on your platform

By using social media, your company is, by definition, choosing to interact with customers outside of its normal platform and IT environment. Therefore, many of the features that your company may take for granted (e.g., security measures that are built into your customer portal, storage protocols for company emails and letters, etc.) may not be available. As an example, the Community Reinvestment Act (CRA) requires certain depository institutions to store consumer comments related to the institution’s performance in helping to meet community needs. If your company is subject to the CRA and runs a social media site, it must consider how it will identify and store these comments.

5. Maintain a plan for addressing consumer comments and complaints

As the host of a social media site, your company often has limited control over (1) the materials posted to the site and (2) the accessibility of the site. Financial services companies must keep these facts in mind when developing risk management procedures. For example, companies must consider how they will address situations where a borrower posts personally identifiable information (e.g., an account number) to the company’s social media page. Companies must also consider how they will handle the reputational risks associated with responding, or not responding, to consumer complaints or negative comments posted to the company’s social media page.

Upcoming Webinar

If this is an area you would like to learn more about, we encourage you to join us for our “Navigating the Compliance Risks of Social Media” Webinar, which is scheduled for Tuesday, February 26 from 11:30 a.m. to 12:30 p.m. CST. This webinar will focus on the compliance risks associated with social media and offer valuable insights on the ways to mitigate those risks. Click here to RSVP to the webinar. Webinar login information will be provided one day prior to the event.

This will be the first webinar in our Payment Systems Webinar Series, which will cover hot topics and common pitfalls for entities navigating the compliance challenges of this dynamic industry — from traditional products (e.g., credit cards, debit cards, prepaid cards, gift cards, Automated Clearing House transactions, rewards programs) to emerging technologies (e.g., mobile payments, mobile wallets, cryptocurrencies).

Take It to the Limit: Increase in Chapter 13 Debt Limits

Take It to the Limit: Increase in Chapter 13 Debt LimitsIndividuals have several options when filing bankruptcy. Chapter 13 is often preferred for individuals with regular income who wish to keep their homes and other secured assets. In a Chapter 13 filing, the court will approve the debtor’s three-to-five-year payment plan, which generally provides for curing any pre-petition delinquency, maintaining payments on secured debt, and a pro rata payment to unsecured creditors based on the debtor’s disposable income. After a Chapter 13 debtor completes his plan, he will receive a discharge of some of his remaining, unpaid debts.

Increase in Chapter 13 Debt Limits

Debtors can only file for Chapter 13 if their total unsecured and secured debts are less than certain statutory amounts. The Bankruptcy Code provides for an increase of the Chapter 13 debt limits every three years. The new debt limits for Chapter 13 were published on February 12, 2019. Beginning April 1, 2019, the Chapter 13 debt limit increased to (a) $419,275 for a debtor’s noncontingent, liquidated unsecured debts, and (b) $1,257,850 for a debtor’s noncontingent, liquidated secured debts. This increase is about 6 percent, which is roughly double the increase in 2016.

Filing Alternatives

What options do debtors have who initially exceed the Chapter 13 debt limits? Many high-income individuals file Chapter 11; however, onerous administrative requirements, high quarterly fees, and uncertain litigation and professional fees and costs lead debtors to seek alternatives from filing Chapter 11. Some debtors file a “Chapter 20.” Under this strategy, the debtor first files a Chapter 7 to discharge much of his unsecured debts (assuming the debtor can meet the Chapter 7 means test). Once he obtains a discharge and lowers his total amount of unsecured debt, the debtor can file a Chapter 13 case to restructure the remainder of his debts.

Spouses may attempt to file two separate cases. By filing separate cases, the total amount of debt per debtor is decreased, which may result in meeting the debt limit requirements. If the debtors have individual debts, one debtor may seek a Chapter 7 discharge of unsecured debts while the other debtor may restructure secured and unsecured debts under a Chapter 13.

Depending on the jurisdiction, spouses may be successful in arguing that the Chapter 13 debt limits should be higher for spouses filing as joint debtors. A minority of courts will consider the total amount of debt attributable to each of the joint debtors to determine whether each debtor meets the Chapter 13 debt limits. If only one debtor meets the debt limits, he may remain in Chapter 13, while the debtor who exceeds the debt limits must either dismiss his case or convert it to a different chapter. Notably, while this strategy is effective in a minority of courts, some jurisdictions have specifically ruled that the joint debtors’ combined debts must meet the Chapter 13 debt limit requirements to remain in that chapter.

How Does This Affect Student Loan Debt?

Many individuals with regular income struggle with unmanageable student loan debt. According to a recent Bloomberg report, the number of individuals who are delinquent 90 or more days on student loan payments increased to a record high in the fourth quarter of 2018, despite the decreasing unemployment rates. Often, debtors with regular income but high student loan debts fail the Chapter 7 means test requirements while simultaneously exceeding the Chapter 13 debt limits. For such debtors, Chapter 11 may be the only bankruptcy relief available.

However, the Bankruptcy Court for the Northern District of Illinois recently indicated that courts are considering solutions to address these issues and offer more flexibility. The Chapter 13 trustee moved to dismiss the debtor’s case, arguing that his debts (largely student loan and credit card debt) exceeded the debt limits. The Bankruptcy Court held that the debtor could remain in Chapter 13, finding that, while section 109(e) sets standards for Chapter 13 eligibility, section 1307(c) is the section under which a Chapter 13 case could be converted or dismissed for cause. Further, after noting the legislative history of debt limits, which were intended to prevent large businesses from filing Chapter 13, the Bankruptcy Court held that, under these facts, no cause existed to dismiss the case. On appeal, the District Court for the Northern District of Illinois reversed the Bankruptcy Court’s decision, finding that exceeding the debt limits constituted cause to convert or dismiss the Chapter 13 case. Although the Bankruptcy Court’s decision was reversed, the case signals that professionals and courts are considering solutions to address unmanageable student loan debts and Chapter 13 debt limits.

So You Violated Sanctions, Now What? OFAC Offers a Tutorial on Remediating Violations.

So You Violated Sanctions, Now What? OFAC Offers a Tutorial on Remediating Violations. Two recent civil penalty actions by OFAC supply guidance for how entities should address sanctions violations after they are discovered.

In the first case, Kollmorgen Corporation settled civil liability for violations of Iranian sanctions for a mere $13,381. For perspective, the maximum statutory civil monetary penalty available for the violations was $1,500,000. So why the leniency from OFAC? The answer is swift and comprehensive remedial action. Specifically, Kollmorgen, an American company, acquired a Turkish company, Elsim. After the acquisition, Kollmorgen discovered that Elsim made sales to customers in Iran and continued to service the contracts on at least six different occasions. To make matters worse, Elsim employees actively concealed the Iranian transactions from Kollmorgen’s management. Elsim also falsified records to conceal the transactions.

Having uncovered the violations through a robust due diligence program, Kollmorgen took swift, strong, and effective remedial steps that fall into four broad categories:

  • Review – Kollmorgen’s due diligence program detected the violations (notwithstanding Elsim’s active suppression) in the first place. Then, having discovered the violations, Elsim implemented manual reviews of Elsim’s database to detect any other violations. Kollmorgen also implemented an ethics hotline for reporting future violations.
  • Control – In addition to firing the offending manager, Kollmorgen also required Elsim’s senior management to certify on a quarterly basis that no Elsim services or products were provided to Iran. Kollmorgen also hired outside counsel to investigate the matter.
  • Education – Kollmorgen conducted written and in-person training for Elsim employee’s on Kollmorgen’s trade compliance policies.
  • Blocking – Kollmorgen took steps to block the Iranian customers from future orders.

Contrast the Kollmorgen case against a $5,512,564 penalty against AppliChem, a German company acquired by Illinois Tool Works, Inc. There, AppliChem behaved in a similar manner to Elsim in that it actively masked blocked transactions, this time with Cuba, through an intermediary company. Although Illinois Tool Works self-reported, its response lacked the same sort of extensive preventative and remedial steps taken by Kollmorgen. AppliChem apparently lacked the robust due diligence program of Kollmorgen because it missed several red flags indicating that blocked transactions were ongoing. AppliChem also apparently failed to implement the same sort of strong remedial programs exemplified by Kollmorgen’s response. OFAC’s opinion of the two responses is exhibited by the divergence in the two penalties—AppliChem’s penalty represents 27% of the maximum civil penalty versus the penalty against Kollmorgen, which represents less than 1% of the possible penalty.

The message is clear—organizations that act proactively, swiftly, and decisively in response to discovery of likely sanctions will be granted greater lenience than those organizations that do not.

Part II: Navigating the Maze of Servicing Discharged Debt

Part II: Navigating the Maze of Servicing Discharged DebtWelcome to Part II of our series on the servicing of discharged mortgage debt (catch up on Part I). This part will discuss communications to discharged borrowers and evaluate various disclaimers that can be utilized.

The only way to fully eliminate the risk of violating the bankruptcy discharge injunction is to cease all communications to borrowers who received a discharge of the debt. However, this drastic change in practice is not realistic. First, the discharge only eliminates the borrower’s personal liability – the servicer’s lien, and its right to foreclose on the collateral, still exists. A discharge of this personal liability does not preclude servicers from communicating information to the borrower that may be relevant to possible foreclosure or how to avoid foreclosure, and does not absolve the servicer of any existing requirement to send such notices. In fact, courts have found that statutorily required pre-foreclosure notices do not violate the discharge injunction (although a carefully worded disclaimer is still advisable). Second, where the borrower is still living in the home, and is still paying on the loan, the borrower may be seeking additional information about the loan, including how much they are required to pay to avoid foreclosure. Just as the discharge injunction does not absolve the servicer of sending statutorily required foreclosure notices, neither does it absolve the servicer of sending escrow statements as required by RESPA. Thus, servicers are left manipulating this required correspondence to such borrowers to mitigate the risk of violating the discharge injunction.

To determine whether a post-discharge communication violates the discharge injunction, courts embark on a fact-intensive inquiry into whether such communication was an attempt to collect the debt from the borrower personally. Courts heavily scrutinize the existence of, and language within, bankruptcy disclaimers on borrower communications. As part of this scrutiny courts will view such communications from the perspective of the unsophisticated consumer. Following such inquiries in cases involving correspondence to borrowers following their discharge, courts have found discharge violations where such correspondence included due dates, amounts due, and stated that a late fee would be charged for untimely payment. However, if the statement is for informational purposes only, and has a proper disclaimer, a court is less likely to find a violation. A proper disclaimer should include a statement acknowledging the effect of the discharge, that the creditor is not attempting to collect discharged debt against the borrower personally, and that any payments would be voluntary. However, a survey of relevant case law shows it is abundantly clear that there is no “magic shield” for a bankruptcy disclaimer, and even innocuous statements under the right facts may be found to violate the discharge injunction. In fact, similar disclaimers may appear on correspondence in a case where the judge finds no discharge injunction violation in one case, and where an opposite finding results in another case.

The specific circumstances of the borrower-servicer relationship, and the facts presented by the borrower, weigh heavily into a judge’s decision of whether the servicer has violated the discharge injunction. One of the most critical facts is the volume of communication. Even where a servicer uses carefully crafted disclaimer language, if it sends a large quantity of letters offering alternatives to foreclosure in a short period of time, this will look more like coercive behavior than sending similar correspondence once. Further, if the borrower indicated an intent to surrender the property that fact will often tip the scales toward a finding of a discharge injunction violation. Lastly, if the borrower or his attorney has previously requested that the servicer cease sending such correspondence, the court is more likely to find a violation.

Crafting correspondence to discharged borrowers is further complicated where that correspondence requires an FDCPA disclaimer. While courts have generally found that statutorily required pre-foreclosure notices do not violate the discharge injunction, servicers still must take care to carefully review and craft disclaimer language. These FDCPA disclaimers often look to be in direct conflict with the bankruptcy code where they state that the correspondence is a communication from a debt collector, for the purpose of collecting a debt and that information obtained may be used for that purpose. The servicer of a discharged debt therefore looks like they are telling the borrower that they intend to collect the debt, but that they are also recognizing that they cannot do so. This dichotomy has led some courts to find that this type of disclaimer could be misleading to the least sophisticated customer. However, there is at least some case law support that it is permissible to include FDCPA disclaimers in addition to significant and prominent bankruptcy disclaimers.

Takeaways

  • Servicers should ensure that all communications to discharged borrowers are carefully tailored to acknowledge the discharge and the voluntary nature of continued payments, and contain other appropriate language and disclaimers. Such disclaimers should be prominently included and not part of the “fine print.” Where possible, disclaimers should not be generic or hypothetical.
  • Borrowers should be regularly reminded that all payments are voluntary and that they have no personal obligation to pay the servicer.
  • Repeated disclaimers are beneficial, and all correspondence related to payments of any type should have disclaimers.
  • Servicers should consider the totality of its communications with borrowers, such as spacing of all letters, loss mitigation overtures, monthly statements, escrow statements, and/or phone calls.
  • Servicers should avoid sending any unnecessary letters to discharged borrowers, including letters not otherwise required by non-bankruptcy law.

Part III of this series will discuss loan modifications for discharged borrowers and evaluate practices that servicers can employ to reduce risk.

CFPB Guts Major Component of Payday Lending Rule

CFPB Guts Major Component of Payday Lending RuleToday, the CFPB proposed amendments to its Payday, Vehicle Title, and Certain High-Costs Installment Loans Rule. As anticipated, the bureau is proposing to rescind the rule’s requirements that lenders make certain ability-to-repay underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans on the basis that such restrictions would limit consumer access to credit. The bureau is also proposing to delay the August 19, 2019, compliance date for the mandatory underwriting provisions of the 2017 final rule to November 19, 2020.

The bureau further indicated that it will not reconsider changes to the rule’s payment provisions. Those provisions prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless the lender obtains a new consumer authorization to withdraw funds. The payment provisions also require such lenders to provide consumers with written notice before making their first attempt to withdraw payment from their accounts and before subsequent attempts that involve different dates, amounts, or payment channels. These new payment obligations are more restrictive than the current federal laws in place, including the NACHA rules, and will be very problematic for lenders.

There will be a 90-day public comment period for the proposed amendments to the underwriting provisions. On the other hand, there will be a 30-day comment period for the proposed extension to the implementation date for the underwriting provisions. That said, the bureau’s comments seem to suggest the payment provisions may still go live on August 19, 2019. Accordingly, lenders should take stock of the payment provisions and be prepared for an August 19, 2019, effective date until further  notice.

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