Repurchase Demands - Defenses

QUESTION 

I am the Compliance Officer and General Counsel for a lender. I would like some information about common defenses to repurchase demands. 

We conduct loan file reviews for purposes of determining whether a repurchase demand is valid. These are careful reviews of the loan files. We are also familiar with the usual reasons on which investors base their repurchase demand. 

I am interested in a better understanding of the common defenses to repurchase demands. 

What are some common defenses to repurchase demands? 

ANSWER 

In my view, the response to a repurchase demand is usually a function of the amount in dispute, the status of the relationship of the loan originator with the purchaser or investor making the demand, and the stated grounds for repurchase. 

Most defenses arise directly from the terms of the contract governing the purchase and sale of the loan(s) at issue. Even if the contract appears to govern the basis of the repurchase demand, a defense may exist when the contract contains conflicting or ambiguous provisions. 

Mortgage loan purchase agreements generally contain provisions that relate to loan-level representation, warranties, and covenants of the seller and the conditions under which the seller must cure, repurchase or substitute a mortgage loan in the event of a breach. The purchase agreement will address repurchase obligations for loans when there is a breach of a representation or warranty or defect in the loan documentation and if such breach has a material and adverse effect on the value of the loan or the interests of the purchase in the loan. The seller typically gives a substantial number of warranties and representations; indeed, it is not atypical to see over forty loan-level representations in a mortgage loan purchase agreement. 

Purchase agreements typically also contain notice provisions that require notice of any breach or document defect that has a material and adverse effect on the value of a mortgage loan or on the interests of the purchaser of that loan. The time frame for such notice to be given is typically ninety days from the discovery or receipt of notice of the breach. The seller will usually be given a cure period that allows it to attempt to remedy whatever situation led to the allegation of the breach or document defect. If the seller fails to cure the breach, the seller may be required to repurchase the mortgage loan at a price generally equal to the current mortgage loan balance plus accrued interest and may be allowed to substitute the loan with another qualified mortgage. 

When the obligation to repurchase is based on provisions contained in different documents, such as the contract itself and a referenced guide or manual, the question arises as to whether the referenced document has been properly incorporated into the contract so as to bind the parties. 

If the manual or guide has been revised since the date of the contract, it is important to determine whether the investor has taken the proper steps for the revisions to have the force of a contract amendment. 

Other defenses may arise from the circumstances surrounding contract formation. If collateral documents, such as guides or manuals, were not provided at the time of contracting, the contract may be deemed an adhesion contract and, depending on the investor’s practices, found to be unconscionable. This situation sometimes leads to litigation! 

An inquiry into the underwriting and servicing of the loan can also uncover valid defenses. Additionally, there may be defenses available based on the manner of liquidation of the loan collateral. 

Some of the most common defenses to repurchase demands generally are that the loan is a performing loan, that there are service errors or other circumstances attributable to the loan’s default, a lack of evidence of any misrepresentation, a lack of proper notice, or a violation of good faith and fair dealing standards by the party making the repurchase demand. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

Debt Collection Acts and Regulations

QUESTION

I am an associate in the compliance department of a mortgage lender. We are a nonbank lender licensed in 40 states. Our company is involved in originating and servicing loans. 

I have been updating our debt collection policy. Reading through it, I found several gaps in areas covered by federal law. But I am not sure I’ve got them all! 

I need help getting a list of the laws involved in debt collection. I hope you can assist. 

What are the federal laws relating to debt collection? 

ANSWER

Many financial institutions and other entities engage in debt collection, including originating creditors, third-party collectors, debt buyers, and collection attorneys. 

Here is a non-comprehensive bullet list of the variety of such businesses: 

·       Originating creditors that attempt to obtain payment from the consumer, typically by sending letters and making telephone calls to convince the consumer to pay; 

·       Originating creditors that outsource the collection of debt to third-party collection agencies or attorneys or sell the debt to debt buyers after an account has been delinquent for a period of time; 

·       Third-party collection agencies that collect debt on behalf of originating creditors or other debt owners, often on a contingency fee basis; 

·       Debt buyers that purchase debt, either from the originating creditor or from another debt buyer, usually for a fraction of the balance owed; 

·       Debt buyers that sometimes use third-party collection agencies or collection attorneys to collect their debt but may also undertake their own collection efforts; 

·       Debt buyers that decide to sell purchased debt to another debt buyer. 

The Dodd-Frank Act (Act) gave the Consumer Financial Protection Bureau (CFPB) supervisory authority over various types of institutions that may engage in debt collection, including certain depository institutions and their affiliates, and nonbank entities in the residential mortgage, payday lending, and private education lending markets, as well as their service providers. The Act also gave the CFPB supervisory authority over “larger participants” of markets for consumer debt collection, as the CFPB defines by rule, and their service providers.[i] 

The CFPB issued a larger participant regulation in the consumer debt collection market.[ii] The consumer debt collection larger participant rule[iii] provides that a nonbank covered person is a larger participant in the consumer debt collection market if the person’s annual receipts from consumer debt collection – as defined in the rule – are more than $10 million. 

The entities that the CFPB supervises must comply with several primary laws to the extent applicable. I will provide a brief description of each. 

Fair Debt Collection Practices Act (FDCPA) 

The FDCPA governs collection activities and prohibits deceptive, unfair, and abusive collection practices. The FDCPA applies to entities that constitute “debt collectors,” which generally include: 

·       Third parties such as collection agencies and collection attorneys collecting on behalf of lenders; 

·       Lenders collecting their own debts using an assumed name; and 

·       Collection agencies that acquire debt at a time when it is already in default. 

The FDCPA applies to debts incurred or allegedly incurred primarily for the consumer’s personal, family, or household purposes. 

Fair Credit Reporting Act (FCRA) 

The FCRA and its implementing regulation, Regulation V, require that furnishers of information to consumer reporting agencies follow reasonable policies and procedures regarding the accuracy and integrity of data they place in the consumer reporting system. The FCRA and Regulation V require furnishers and consumer reporting agencies to handle disputes and impose other obligations on furnishers, consumer reporting agencies, and users of consumer reports. 

Gramm-Leach-Bliley Act (GLBA) 

The GLBA and its implementing regulation, Regulation P, impose limitations on when financial institutions can share nonpublic personal information with third parties. Also required under certain circumstances, financial institutions must disclose their privacy policies and permit customers to opt out of certain sharing practices with unaffiliated entities. 

Electronic Fund Transfer Act (EFTA) 

The EFTA and its implementing regulation, Regulation E, impose requirements if an institution obtains electronic payments from a consumer within the statute’s scope of coverage. 

The Equal Credit Opportunity Act (ECOA) 

The ECOA and its implementing regulation, Regulation B, apply to all creditors and prohibit discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age,[iv] receipt of public assistance income, or exercise in good faith of any right under the Consumer Credit Protection Act.[v] Credit transactions encompass “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit,” and include “revocation, alteration, or termination of credit” and “collection procedures.”[vi] 

A word about Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). There are risks to consumers that may include potentially unfair, deceptive, or abusive acts or practices. In your debt collection policy, I suggest you have risk assessment procedures regarding UDAAP and include CFPB information about the legal standards and its approach to examining for UDAAP. The particular facts and circumstances in a case are crucial to determining UDAAP. Institutions should determine whether the applicable legal standards have been met before a UDAAP violation is cited.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] 12 USC 5514(a)(1)(B)

[ii] On October 24, 2012

[iii] 12 CFR Part 1090, effective January 2, 2013

[iv] Provided the applicant has the capacity to contract.

[v] 12 CFR 1002.2(z), 1002.4(a)

[vi] 12 CFR 1002.2(m)

A Fintech's Smug President

QUESTION

We are a fintech that is growing quickly. I am the company’s General Counsel. Our President is a bit arrogant and cavalier. He is only interested in attracting investors and clients. Regulation takes a distant second place. I’ve had enough of the non-compliance. I’ve tried unsuccessfully to get him to recognize the legal exposure. I’m done. I’m resigning. My last day is the end of the week. 

Before I go, I am sending this message to you. The President reads your MortgageFAQs newsletter and quotes it all the time. I have read your writing for years, and I know you do not condone workarounds, short-term fixes, and non-compliance with appropriate regulations. I hope you will consider telling your readers why Fintechs must comply with the CFPB’s expectations. 

The CFPB has been increasingly active in its review of fintech activities. It is flexing its supervisory and enforcement authority more and more. The litigation is piling up. I was hoping you could let the fintechs know they can expect considerable examination and enforcement initiatives by the CFPB. 

Why is it important for fintechs to comply with the CFPB’s rules? 

ANSWER

I’m sorry you have been so frustrated. Your message notes that you are going into private practice. Working for a difficult President can burn out even the most resilient staff. I hope you will stay alert to fintech rules and regulations. These companies need people like you as a beacon for compliance. 

Fintech compliance is relatively new. Recently, AI is getting integrated into fintech technologies. Most people in the financial services community think of fintech as applications (or “apps”) involved in financial transactions. There are fintech apps that run quite a spectrum of services, including apps involved in payments, crypto, investments, advisories, and so-called P2Ps (viz., peer-to-peer). 

The fintech categories are very broad, all in some way connected to financial services transactions. Examples include mortgage banking, various types of unsecured lending, payments, money transfers (domestic and international), equity finance, and consumer banking. 

For instance, you can go to your non-bank, bank, or credit union for a loan or apply online and, in many cases, apply using an app. Fintech’s automated systems and AI speed up the approval process to minutes or seconds. This is done using software to determine a borrower’s creditworthiness, advancing the results to an automated underwriting process, and producing an approval at dazzling speed. 

PayPal is an example of a fintech company – one of the largest. It has a global reach and many platform configurations, and it offers instant transactional opportunities to individuals and businesses worldwide. You may not realize it, but Visa, Mastercard, Intuit, Square, Robinhood, Binance, and Venmo are fintech companies.[i] There are hundreds of fintech companies, and many more are proliferating rather quickly. 

The Consumer Financial Protection Bureau (CFPB or Bureau) is mandated to ensure consumers have access to fair, transparent, and competitive markets for consumer financial products and services. Importantly, the CFPB’s supervisory and enforcement requirements pertain to fintechs. 

Let’s get to your question about why fintechs should comply with the CFPB’s rules.

I suggest there are at least three reasons why fintech enterprises should comply with CFPB requirements, beginning with the CFPB’s jurisdiction and power to investigate fintechs. Congress granted the CFPB the authority to police markets for consumer financial products or services,[ii] including consumer credit products, deposit-taking activity, payment processing, and debt collection, to name just a few. 

The policing is done by supervising subject institutions and enterprises and enforcing violations of law against those that offer or provide consumer financial products or services or provide a material service to a consumer financial services provider. And, to be sure, this includes fintechs. 

The Bureau has been increasingly active in supervision, enforcement, and rulemaking involving the fintech industry, many non-bank financial services providers. The CFPB will continue to develop rulemaking to expand its purview to large non-depository lenders. 

Indeed, whether partnered with banks or acting alone, fintech companies are subject to the CFPB’s supervision. 

In connection with the foregoing, tangling with the Bureau could engender a risk of penalties and injunctive relief. Several administrative consent orders come to mind. For instance, the CFPB entered into a consent order with two payment processors and their owners, requiring them to pay $3 million in penalties and refund over $8 million in fees.[iii] 

The CFPA has also sought injunctive relief in enforcement actions. The Bureau’s Director, Rohit Chopra, has said that it is seeking to enforce “limits on activities or functions of a firm” to promote “structural” changes at financial services firms to prevent future violations.[iv] 

If the law will not constrain your President, maybe reputational harm would mean something to him. When the CFPB conducts a public enforcement action or just publicly discloses an investigation, the harm to the fintech’s reputation can be enormous, perilous, and perhaps fatal. 

If an app or online application is going to replace the traditional means of banking, consumers will want to trust the fintech’s brand – which, from a marketing perspective, is critical to its survival! Reputational damage due to adverse findings issued by the CFPB could also affect a fintech’s relationships with its investors, which will surely impair future fundraising efforts. 

Such CFPB actions would tend to impact a fintech’s relationship with other regulators – federal or state agencies – and could hinder the fintech’s efforts to obtain necessary state licenses, among other things. 

Now, I realize that you are parting with the fintech enterprise. However, your President is doing a disservice to his fintech company and other similarly situated companies by not hiring a compliance professional familiar with fintech business, customers, stress and risk points, and compliance requirements. What the President thinks about compliance will be of no consequence if the company cannot mitigate legal and regulatory risks. A fintech operating without an understanding and respecting the CFPB’s guidelines is exposed to considerable CFPB scrutiny. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] For a recent list of the largest fintech companies, see Top Fintech Unicorns, 2021 Review, 2022 Update, Centre for Finance, Technology and Entrepreneurship (CFTE), https://courses.cfte.education/wp-content/uploads/2022/01/Top-Fintech-Unicorns-in-2022.pdf; and Largest Fintech Companies by Market Valuation, https://courses.cfte.education/ranking-of-largest-fintech-companies

[ii] Title 12 – Banks and Banking, Chapter 42, Wall Street Reform and Consumer Protections, Subchapter V, Bureau of Consumer Financial Protection, see also USC edition, Supplement 2

[iii] In the Matter of: RAM Payment, LLC, inter alia, and Gregory Winters, and Stephen Chaya, Administrative Proceeding No. 2022-CFPB-0003, May 11, 2022

[iv] “Reining in Repeat Offenders”: 2022 Distinguished Lecture on Regulation, University of Pennsylvania Law School, Speech, Chopra, Rohit, March 28, 2022

Fidelity Bond and Errors & Omissions Insurance – Fannie Mae Requirements

QUESTION

We are a mortgage lender in the northeast. We've been a Fannie Mae Seller/Servicer for many years. Our recent MORA audit found some problems handling our Fidelity Bond and Errors and Omissions Insurance. For example, we don't have a process to notify Fannie about losses that exceed $250,000. 

Another procedure issue is we do not have a process to evaluate the insurance regularly. We were criticized for not having sufficient documentation to ensure that all insurance requirements are maintained. 

MORA found several issues with the insurance itself, such as the deductible not meeting Fannie's requirements and the coverage not meeting Fannie's guidelines. 

We now have a few days to correct these findings and convince MORA that this situation is fixed. However, we want to be sure we're on track to give them what they want. So, we're coming to you for some basic guidance on the requirements. 

What should we expect a MORA review to examine with regard to the documentation needed for a MORA review of the Fidelity Bond and Error and Omissions insurance? 

ANSWER

You have mentioned several common findings involving Fidelity Bond and Error and Omissions insurance. Fannie Mae's Mortgage Origination Risk Assessment,[i] known by its acronym "MORA," is an audit team that conducts reviews, usually on-site, which is tasked with assessing the operational capabilities, governance, and compliance with Fannie Mae's Selling Guide ("Guide") requirements. 

In addition to the findings you mention, there are other results, such as the insurance not including appropriate provisions to protect Fannie's interests, as outlined in the Guide. 

A Fannie Seller/Servicer must always be prepared for a MORA audit, which means that the Seller/Servicer must continually monitor and document its compliance with Fannie guidelines. 

We are keenly aware of the requirements reviewed in a MORA audit. Many companies use our Fannie Tune-up® as a tool to prepare for the audit and ensure that they comply with many Fannie guidelines. If interested, you can request information HERE about the Fannie Tune-up®. 

As a Seller/Servicer, you must have a blanket Fidelity Bond and Error and Omissions insurance policy in effect at all times in an amount sufficient to meet Fannie's minimum coverage requirements, maximum deductible requirements, and provision requirements.[ii] 

A fidelity bond is a form of insurance protection that covers policyholders for losses they incur due to fraudulent acts by specified individuals. Errors and omissions insurance is a type of professional liability insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions.

You mentioned that MORA found that your fidelity bond coverage did not meet Fannie's guidelines. Although you requested information specifically about documentation needed for a MORA review of the insurance, I will caution you to be sure that your fidelity bond coverage is equal to a percentage of the greater of your annual total Unpaid Principal Balance ("UPB") of single-family and multifamily annual mortgage loan originations or the highest monthly total UPB of single-family and multifamily servicing of mortgage loans that you own, including mortgage loans owned by you and serviced by others. Coverage must be determined using Fannie's precise formulas.[iii] With certain limitations, errors and omissions coverage must equal the amount of your fidelity bond coverage.[iv] 

Given the foregoing, at minimum you should have: 

·      a process to monitor that coverage is consistent with Fannie requirements and to note that the maximum UPB definitions are based on an annual basis, not just a point in time; 

·      a process to validate that deductibles are consistent with Fannie requirements; 

·      a process to validate annually that coverage includes required provisions; and 

·      a designated individual who maintains evidence of the fidelity bond and errors and omissions coverages. 

Now, onto your question about the documentation expectations! 

You should be able to provide at least nine types of documentation to MORA. Any defects in these categories may lead to an adverse finding on a MORA audit. I will outline them, though please understand that I must be brief, respecting the article's length and the complexity of the subject.[v] 

Documentation Required by Fannie Mae: Fidelity Bond and Errors and Omissions Insurance[vi] 

1)    Provide the total UPB of single-family and multifamily annual mortgage loan originations (this should not be exclusive to the Fannie servicing portfolio held by your institution and should include the entire serviced portfolio). 

2)    Provide the highest monthly total UPB of single-family and multifamily servicing of mortgage loans that the seller owns, including mortgage loans owned by the seller and serviced by others. 

3)    Indicate if multifamily mortgage loans are serviced in addition to servicing single-family mortgage loans. 

4)    Indicate if there have been any occurrences within the past 12 months of a single fidelity bond or errors and omissions policy loss that is mortgage-related and the amount exceeds the lesser of $250,000 or the policy's deductible. If yes, you should describe in detail the nature of the claims and if they were mortgage-related. 

5)    Describe the process in place to notify Fannie Mae of a fidelity bond or errors and omissions policy loss that is mortgage-related within 30 days of discovery. 

6)    Describe the coverage review process, such as how often coverage is evaluated, how adequate coverage is determined, and who within your organization performs this task. 

7)    Fidelity bond policy has the following:

a.   The insurer's name on the insurance certificate;

b.   The policy and/or bond number;

c.   The named insured;

d.   The type and amount of coverage (should specify whether the insurer's liability limits are an aggregate loss or per-mortgage basis);

e.   The effective date of the insurance coverage;

f.    The expiration date of the insurance coverage; and

g.   The deductible amount of the insurance coverage. 

8)    Errors and omissions policy has the following:

a.   The insurer's name on the insurance certificate;

b.   The policy and/or bond number;

c.   The named insured;

d.   The type and amount of coverage (should specify whether the insurer's liability limits are an aggregate loss or per-mortgage basis);

e.   The effective date of the insurance coverage;

f.    The expiration date of the insurance coverage; and

g.   The deductible amount of the insurance coverage. 

9)    Contains evidence of the following provisions for both the fidelity bond and errors and omissions policy:

a.   Fannie is named as a "loss payee" on drafts the insurer issues to pay for covered losses incurred by Fannie;

b.   Fannie has the right to file a claim directly with the insurer if the lender fails to file a claim for a covered loss incurred by Fannie Mae (if available);

c.   Fannie will be notified at least 30 days before the insurer cancels, reduces, declines to renew, or imposes a restrictive modification to the lender's coverage for any reason other than partial or full exhaustion of the insurer's limit of liability under the policy; and

d.   Fannie will be notified within 10 days after the insurer receives a lender's request to cancel or reduce any coverage. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

________________________

[i] A Fannie team may also audit for compliance with Servicer Total Achievement and Rewards (STAR) requirements
[ii] Fidelity Bond and Errors and Omissions Coverage, Selling Guide, A3-5-01, Fannie Mae, July 25, 2017
[iii] Fidelity Bond Policy Requirements, Selling Guide, A3-5-02, Fannie Mae, July 25, 2017
[iv] Errors and Omissions Policy Requirements, Selling Guide, A3-5-03, Fannie Mae. July 25, 2017
[v] Seller/Servicer Risk Self-Assessment, Fidelity Bond and Errors and Omissions Insurance, Fannie Mae, 2020
[vi] See also Fidelity Bond and Errors and Omissions Coverage Provisions, Selling Guide, A3-5-01 Fannie Mae, July 25, 2017

Non-Foreclosure and Time-Barred Collection Activities

QUESTION

We are a client of yours and retain you for our servicing compliance. One of the things we’ve realized over the years in working with your firm is the impact the FDCPA has on our collection activities. In particular, the non-foreclosure and time-barred collection activities. 

Our foreclosure process has passed numerous regulatory reviews. But we want to ensure we handle the non-foreclosure and time-barred collection policy needs. Your team is already working on it. However, I would like you to share your insights with your readers about how the FDCPA applies to the abovementioned concerns. 

As the Chief Risk Officer, I believe other servicers need to get their FDCPA policy and read it carefully to be sure that these aspects are adequately covered. A few years ago, we learned the hard way! I hope you’ll share some information about my concerns. 

What is the relationship between non-foreclosure and time-barred debt collection activities? 

ANSWER 

Of course, I recognize you are one of our clients. I was privileged to work with you to arrange compliance support services. Thank you for the opportunity to work with your organization! 

Now, to your question. I would be glad to share some information. Let me first provide a brief outline that should set the stage for further explication involving non-foreclosure and time-barred debt collection. 

The Consumer Financial Protection Bureau issued an advisory opinion related to time-barred debts.[i] The advisory opinion affirms that the Fair Debt Collection Practices Act (FDCPA) and the Debt Collection Rule prohibit FDCPA-covered debt collectors from suing or threatening to sue to collect a time-barred debt. The advisory also affirms that this prohibition may apply to debt collectors who bring state-court mortgage foreclosure actions to collect on time-barred mortgage debt. 

The FDCPA and its implementing Regulation F govern the conduct of debt collectors when they collect debt.[ii] The statute and regulation generally define a debt collector as 

“any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”[iii] 

Many individuals and entities seeking to collect defaulted mortgage loans and attorneys bringing foreclosure actions on their behalf are FDCPA debt collectors. 

So, to expand this outline further, the FDCPA and Regulation F define debt as 

“any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”[iv] 

Thus, a consumer’s payment obligation arising from a mortgage transaction primarily for personal, family, or household purposes, such as the purchase of the consumer’s residence, falls within the plain language of this definition.[v] It follows that state court foreclosure proceedings often constitute the collection of debt under the FDCPA, and debt collectors who engage in such debt collection activity are subject to the requirements and prohibitions of the FDCPA and Regulation F, whether or not that debt is time-barred.[vi] 

Regulation F prohibits a debt collector from suing or threatening to sue to collect a time-barred debt. As the CFPB explained in finalizing this prohibition, 

“a debt collector who sues or threatens to sue a consumer to collect a time-barred debt explicitly or implicitly misrepresents to the consumer that the debt is legally enforceable, and that misrepresentation is material to consumers because it may affect their conduct with regard to the collection of that debt, including whether to pay it.”[vii] 

Regulation F’s prohibition on lawsuits and threats of lawsuits on time-barred debt is subject to a strict liability standard; that is, a debt collector who sues or threatens to sue to collect a time-barred debt violates the prohibition “even if the debt collector neither knew nor should have known that a debt was time-barred.”[viii] 

Consequently, a debt collector who brings or threatens to bring a state court foreclosure action with respect to a time-barred mortgage debt may violate the FDCPA and Regulation F. This is true even if the debt collector neither knew nor should have known that the debt was time-barred. 

Regarding non-foreclosure collection activities, the CFPB has noted a broad range of non-foreclosure debt collection-related activities are covered by the FDCPA, such as communicating with consumers about defaulted mortgages. FDCPA debt collectors undertaking such activity are subject to the other requirements and prohibitions of the statute and Regulation F when collecting debt, regardless of whether that debt is time-barred. 

For instance, these requirements and prohibitions include the prohibition on debt collectors: 

·     Falsely representing the character, amount, or legal status of any debt;[ix] 

·     Threatening to take any action that cannot legally be taken or that is not intended to be taken;[x] and 

·     Selling, transferring for consideration, or placing for collection a debt that the debt collector knows or should know has been paid, settled, or discharged in bankruptcy.[xi]  

The requirements and prohibitions would also include the requirements that debt collectors: 

·     Identify themselves as a debt collector in all communications with the consumer (except formal pleadings in connection with a legal action);[xii] 

·     Provide the consumer with validation information in certain circumstances;[xiii] and 

·     Respond to consumer disputes adequately before continuing to collect.[xiv]

 Even if an FDCPA debt collector engages only in actions necessary to undertake a nonjudicial foreclosure action, the debt collector is still subject to the FDCPA and Regulation F,[xv] which generally prohibit taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if the debt collector has no present right or intention to do so. 

Because you are our client, I know you service second mortgages. So, a final note. Mortgage servicers (and other entities) selling or collecting on second mortgages are also subject to certain requirements under the Real Estate Settlement Procedures Act (RESPA),[xvi] the Truth in Lending Act,[xvii] and the CFPB’s mortgage servicing regulations.[xviii], [xix] 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

_____________________________

[i] Fair Debt Collection Practices Act (Regulation F); Time-Barred Debt, CFR Part 1006, Advisory Opinion, April 26, 2023, Consumer Financial Protection Bureau.
[ii] This advisory opinion applies to debt collectors as defined in section 803(6) of the FDCPA and implemented in Regulation F, 12 CFR 1006.2(i).
[iii] 15 U.S.C. 1692a(6); 12 CFR 1006.2(i). The statute and regulation also provide that, for purposes of section 808(6) and 12 CFR 1006.22(e), the term debt collector also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. See 12 CFR part 1006.
[iv] 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[v] See, e.g., Cohen v. Rosicki, Rosicki & Assocs., PC, 897 F.3d 75, 83 (2d Cir. 2018).
[vi] See 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[vii] 86 FR 5776, 5778 (Jan. 19, 2021).
[viii] Idem at 5777.
[ix] 15 U.S.C. 1692e(2)(a); 12 CFR 1006.18(b)(2).
[x] 15 U.S.C. 1692e(5); 12 CFR 1006.18(c)(1); 15 U.S.C. 1692f(6); 12 CFR 1006.22(e).
[xi] 12 CFR 1006.30(b).
[xii] 15 U.S.C. 1692e(11); 12 CFR 1006.18(e).
[xiii] 15 U.S.C. 1692g(a); 12 CFR 1006.34.
[xiv] 15 U.S.C. 1692g(b); 12 CFR 1006.38(d); 85 FR 76734, 76845-48 (Nov. 30, 2020).
[xv] See FDCPA section 808(6)25 and Regulation F, 12 CFR 1006.22(e).
[xvi] 12 U.S.C. 2601 et seq.
[xvii] 15 U.S.C. 1601 et seq.
[xviii] See, e.g., 12 CFR 1024.33(b) (requiring a transferee and transferor servicer to provide a timely notice of transfer of servicing to the affected borrower); 12 CFR 1024.39 (requiring servicers to make early intervention contacts with delinquent borrowers); and 12 CFR 1024.41 (requiring servicers to follow certain loss mitigation procedural requirements, including certain foreclosure-related protections). Note that small servicers, as defined in 12 CFR 1026.41(e)(4), are exempt from certain of these requirements. See 12 CFR 1024.30(b).
[xix] See 12 CFR 1026.41(a); see also, e.g., 12 CFR 1026.41(e)(4) (exempting small servicers from this requirement) and 12 CFR 1026.41(e)(6) (exempting servicers from periodic statement requirements for certain charged-off loans but only if, among other conditions, the servicer sends a specific notice to the consumer and does not charge additional fees or interest on the account).