Since its creation in 2011, the Consumer Financial Protection Bureau (CFPB) has received more than 65,000 complaints from consumers about their mortgages. The majority of these complaints come from borrowers having difficulty making their payments--something the bureau cites when justifying its focus on new rules for dealing with distressed borrowers. [paragraph] Over roughly the same time frame, the Federal Trade Commission (FTC) has received 1.6 million complaints about things other than fraud and identity theft. Among the more popular categories it tracks are debt collection by banks, non-bank lenders and collection agencies. [paragraph] As complaints continue to rise, the federal and state regulations designed to protect consumers from abusive practices have become increasingly complex. This has caused many servicers to become gun-shy about communications to borrowers in order to avoid fines and potential lawsuits arising from violations of the rules.
This response, however, is not the answer. After all, past-due borrowers still need payment reminders and those in default must be kept informed of their loss-mitigation options.
Servicers have to find a way to deliver these communications without unwarranted legal risk, in compliance with the consumer-protection laws as they stand today.
So, what do these various regulations--including cross-industry rules such as the federal Telephone Consumer Protection Act (TCPA)--mean for the mortgage industry? And what do we need to consider to reach borrowers while remaining compliant?
Compliance: It's like playing dodgeball--with more calls
When I was in junior high, we had a sadistic gym teacher (who didn't?) who decided to make dodgeball more interesting by randomly throwing additional balls into the middle of the game. That's not unlike the situation mortgage servicers find themselves in these days when navigating the compliance landscape.
With most servicers focused on the CFPB's modification of the rules implementing the Real Estate Settlement Procedures Act (RESPA) (Regulation X) that go into effect in January 2014, it's possible some have taken their eyes off of the additional balls being thrown at creditors of all shapes and sizes by the lawmakers, regulators and the courts. That's not a good idea.
A perusal of recent lawsuits stemming from TCPA--which restricts telemarketing, the use of automated tools and communications to mobile devices--reads like a who's who of the mortgage industry. Bank of America, Nationstar Mortgage, SunTrust Mortgage and Wells Fargo Home Mortgage have all been named as defendants in TCPA complaints in the past year.
Wells, facing nearly $3 billion in potential liability, settled a TCPA class-action complaint in February for $17 million. While not all of these lawsuits go the plaintiff's way--Nationstar and SunTrust both look likely to prevail in recent cases--defending them is costly and time-consuming.
The same goes for various state consumer-protection laws and regulations impacting collections practices. These are often modeled on the federal Fair Debt Collection Practices Act (FDCPA), but apply not only to collection agencies, as is the case with the FDCPA, but also the original creditor.
This means servicers have to be aware of and stay within the white lines painted by each state--which unfortunately zigzag abruptly each time you cross a state border.
Finally we can't forget about the trail of tears we've travelled the past three years, starting with the banking regulators' consent orders, followed by the National Mortgage Settlement and now the CFPB's servicing rules.
Each of these mandate various types of proactive borrower outreach throughout the life of the loan. These communication requirements unfortunately have the potential of conflicting with consumer-protection laws like TCPA.
Coping with the TCPA--It's complicated
The TCPA is a complex federal law, made even more so by the fact that the intent of Congress has been continuously reinterpreted by the Federal Communications Commission (FCC) through its rulemaking authority over the 22 years since it was passed in 1991. …