The Consumer Financial Protection Bureau (CFPB) released “policy guidance” on June 27, 2017 related to the effective dates of the 2016 mortgage servicing rule amendments. In response to repeated requests from the mortgage servicing industry to change the two effective dates, the CFPB explained that it does not “intend to take supervisory or enforcement action for violations of existing Regulation X or Regulation Z resulting from” early implementation of the amendments. However, this “relief” technically only applies to a three-day window prior to each of the effective dates of the 2016 amendments. While this guidance may be useful for some areas of the new law, in some ways the CFPB may have injected additional considerations into the implementation process that must be worked through in the coming months.
The vast majority of the 2016 amendments are slated to go into effect on October 19, 2017, with certain sections of the law becoming effective on April 19, 2018. Both of those dates fall on a Thursday, which raises issues regarding implementing a new process mid-week. This is further complicated by the CFPB’s decision in the initial release of the amendments to not provide an early implementation safe harbor. While early implementation of some provisions will not raise any compliance issues, there are some areas where changing a process in response to the amendments prior to the effective date would likely violate existing laws.
The CFPB’s policy guidance—which is labeled as “non-binding”—explains that the CFPB does not intend to take supervisory or enforcement action for any violations that result from implementing the 2016 amendments up to three days early. This means that servicers can implement the new rules starting on October 16, 2017, and April 16, 2018, without any repercussions from the CFPB. This relief certainly will be helpful to servicers who have been hoping and requesting to have a weekend to implement and test certain processes associated with the new law. However, there are a couple of interesting points related to the CFPB’s choice that are worth consideration.
First, the CFPB chose to issue a “non-binding general statement of policy” rather than actually amend the effective dates of the rules. In that regard, it is worth noting that, in conjunction with the issuance of its policy guidance, the CFPB did release a handful of technical, non-substantive corrections to the original amendments. The CFPB did not explain why it chose to formally amend certain aspects of the rule but not to formally amend the effective dates, but the implications of this choice are important. For example, the CFPB’s policy only protects servicers from regulatory risk associated with the CFPB. It does not protect servicers from state regulators that have authority to supervise and enforce compliance with the federal servicing obligations. And, as has been alluded to above, it is not even binding on the CFPB.
Additionally, the CFPB’s choice to issue policy guidance rather than formally amend the rules also does not protect servicers from litigation risk. Many of the servicing requirements in Regulations X and Z are enforceable through private litigation, and the CFPB’s decision to refrain from taking supervisory or enforcement action does not in any way alleviate that risk. Admittedly, this leaves a relatively small window of time where a revised process could be subject to possible state action or private litigation. Nevertheless, the risk that remains must be taken into account by mortgage servicers as they schedule the roll-out of new processes to comply with the 2016 amendments.
As the first effective date quickly approaches, servicers should assess which provisions can be implemented early without violating another existing state or federal law. For those provisions that would violate applicable law, servicers should assess whether the benefits of implementing three days early outweigh any risk that may exist. The end result of this analysis likely will be a true rolling implementation calendar that will enable new processes to be put in place over time, with very few areas that will need to be addressed mid-week.