CFPB Publishes TRID Rule Questions Index

The CFPB has posted on its website an index to the various questions regarding the TILA/RESPA Integrated Disclosure (TRID) rule that were addressed during the five webinars on the rule, conducted by CFPB staff.

The index includes a link to the CFPB webpage that has links to recordings of the five webinars. Also, the reference date of the applicable webinar that addresses each question is a link to the Table of Contents for that webinar.

Two of the questions in the index were answered by the CFPB in the August 26, 2014, webinar, and the TRID rule was later amended to address the issues presented by the questions:

  • “Are creditors required to provide revised Loan Estimates on the same business day that a consumer or loan officer requests a rate lock?”
  • “Where on the Loan Estimate form is the creditor supposed to provide the language described in 1026.19(e)(3)(iv)(F) for construction loans where settlement may be delayed?”

At the time, the TRID rule provided for the issuance of a revised Loan Estimate on the same date that the creditor locked the interest rate. In January 2015, the TRID rule was amended to provide for the issuance of a Loan Estimate no later than three business days after the rate is locked.

The second question addressed situations in which a new home is under construction, or will be constructed, and as a result the closing of the loan will occur more than 60 days after the initial Loan Estimate is provided. In such a situation, the TRID rule allows the creditor to reserve the right to issue a revised Loan Estimate no later than 60 days before closing without regard to the standard restrictions on fee increases, as long as the creditor provides a statement to this effect in the initial Loan Estimate.

In a transaction subject to both TILA and RESPA, the Loan Estimate is a standard disclosure and may not be modified except as provided in the TRID rule. However, the original TRID rule did not address where the statement could be included in the Loan Estimate and, as a result, a creditor was not authorized to include the applicable statement in the Loan Estimate. In January 2015, the TRID rule was also amended to provide for the inclusion of the following statement in the “Other Considerations” section on page three of the Loan Estimate: “You may receive a revised Loan Estimate at any time prior to 60 days before consummation.”

For future reference, parties may want to annotate these questions in the index to note the applicable amendments that were made to the TRID rule.

- Richard J. Andreano, Jr.

CFPB Issues Compliance Bulletin on PMI Cancellation and Termination

The CFPB recently issued Compliance Bulletin 2015-03, addressing the cancellation and termination requirements for private mortgage insurance (PMI) under the Homeowners Protection Act of 1998 (HPA). We note that this Bulletin does not provide much in the way of novel interpretation or expected best practices. Instead, the Bulletin outlines the basics of these requirements, and cites examples of servicing practices that have misapplied or confused the plain language of the HPA. The Bulletin covers the following topics: (1) borrower-requested cancellation of PMI; (2) automatic termination of PMI; (3) final, mid-amortization termination of PMI; (4) PMI refunds; (5) annual PMI disclosures; and (6) investor guidelines.

On the topic of borrower-requested cancellation, the Bulletin emphasizes that the 80% loan-to-value (LTV) threshold must be based on the original value of the property. Thus, while a valuation may be required to ensure that the current property value has not declined below the original value (as a separate condition for cancellation) the LTV calculation is still based on the original value of the property. With respect to automatic termination of PMI, the Bulletin emphasizes that, unlike borrower-requested cancellation: (1) the current value of the property is not a factor, and so servicers may not require a property valuation as a condition of termination, and (2) borrowers cannot advance the termination date by making extra payments to lower the principal balance.

The Bulletin also addresses the final termination requirements under the HPA. Those provisions prohibit requiring PMI coverage, beyond the midpoint of the amortization period, provided the borrower is current. The Bulletin points out that because the HPA applies only to residential mortgage loans consummated on or after July, 29, 1999, the final termination requirements began to impact standard 30-year loans in August 2014. Accordingly, servicers are reminded to ensure that appropriate policies and procedures are in place to comply with the final termination requirements.

On the subject of PMI refunds, the Bulletin notes certain violations observed in examinations, such as improperly collecting premiums after the time frames imposed under the HPA and failing to remit unearned PMI premiums to borrowers in a timely manner. The Bulletin also notes that the CFPB observed failures to provide the annual PMI notice required under the HPA.

Finally, the Bulletin addresses the issue of investor guidelines for cancellation of PMI that are inconsistent with the requirements under the HPA. The Bulletin emphasizes that investor guidelines cannot restrict the PMI cancellation and termination rights provided under the HPA. The Bulletin notes certain examples of these issues, such as investor guidelines that base the LTV calculations on the current market value, as opposed to the original value as required by the HPA.

Overall, this Bulletin is a reminder to the industry of the plain language requirements under the HPA. It is clear that the CFPB views this as an area for which the industry seems to have lost focus, and topics addressed in the Bulletin likely will be points of emphasis for examinations.

- Reid F. Herlihy

Sixth Circuit Holds that a Business Entity Is a "Person" for Purposes of FDCPA's Enforcement Provision

The Sixth Circuit Court of Appeals recently held that a limited liability company (“LLC”) constitutes a “person” within the meaning of the Fair Debt Collection Practices Act (FDCPA or the “Act”), in Anarion Investments LLC v. Carrington Mortgage Services, LLC, et al. This decision could pave the way for artificial entities to bring suit under the Act’s enforcement provision.

In Anarion Investments, a limited liability company plaintiff sued pursuant to the FDCPA’s enforcement provision, which provides that “any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person[.]” 15 U.S.C. § 1692k(a). The plaintiff alleged that the defendants had made a misrepresentation in a series of foreclosure notices published in a local newspaper, regarding a property that plaintiff had leased with an option to buy.

The defendants argued that the Act’s enforcement provision refers to natural persons, and not artificial business entities. The District Court agreed, stating that certain provisions of the FDCPA would be nonsensical if applied to an LLC. As an example, the Act prohibits the threat or use of violence to harm a person (see § 1692d(1)), and a corporation cannot be physically harmed.

The Sixth Circuit disagreed and reversed, focusing on the Act’s use of the term “person” to include non-natural persons in other contexts. For instance, § 1692 bars debt collectors from communicating with any person other than, among others, a consumer reporting agency. The panel said that a consumer reporting agency, of course, is not a natural person. Furthermore, the terms “creditor” and “debt collector,” while they can apply to natural persons, often are used to apply to corporations.

Additionally, the Act defines a “consumer” as “any natural person obligated or allegedly obligated to pay any debt.” The panel reasoned that because Congress chose to use “natural person” in that context, it is clear that when Congress meant to refer only to natural persons – and not artificial entities – it did so expressly.

The court rejected the defendants’ argument that extending FDCPA protections to artificial entities would be inconsistent with the Act’s purpose for two reasons. First, the Sixth Circuit said that the Act limits “debt” to that incurred primarily for “personal, family or household purposes,” such that one cannot bring suit based on an attempt to collect a debt owed by a business. (This case was unusual because the plaintiff LLC brought suit based on an attempt to collect an individual person’s personal debt.)

Second, the court said that, even though an LLC is a “person” under the Act, “nothing in our decision today means that [the plaintiff] can bring suit under the FDCPA.” This is because it remained unclear whether the defendants’ alleged misrepresentations were made “with respect to” the plaintiff, as required for relief under the Act’s civil enforcement provision.

A spirited dissent accompanied the majority opinion, arguing that the purpose of the FDCPA, as shown by its legislative history, is to protect natural persons from abusive debt collection practices. The judge voiced concern that the court’s holding “potentially opens the door to a new class of plaintiffs under the FDCPA and effectively provides a new cause of action in foreclosure appeals

- Joel Tasca, Melanie J. Vartabedian, and Michele C. Ventura

Second Circuit: Transfer of Mortgage Servicing Rights Triggers FDCPA Disclosure Requirement

A federal appeals court has ruled that a nonbank mortgage servicer’s notice of servicing rights transfer sent pursuant to RESPA constitutes debt collection and thus triggers mandatory FDCPA disclosures.

The Second Circuit Court of Appeals’ ruling this month in Hart v. FCI Lender Services has important ramifications for nonbank servicers that acquire distressed loans. A delinquent borrower filed the putative class action against his mortgage servicer for failing to disclose to the current creditor under FDCPA § 1692g in the initial notice of transfer of servicing rights or within five days after. Citing similar precedent from the Seventh Circuit, the servicer argued that the disclosure obligations under 1692g of the FDCPA are only triggered upon providing the “initial communication…in connection with the collection of any debt” and that the transfer of servicing notice under Section 6 of RESPA is not a debt collection communication.

The Second Circuit, however, held that the notice was not only a communication in connection with debt collection, but was actual debt collection. The Court explained that whether a particular communication is made in connection with collection of a debt is a “question of fact” and “determined by reference to an objective standard.” The Court then made clear that if the borrower could “reasonably understand it” to be a communication in connection with the collection of a debt, then it is a debt collection communication under the FDCPA regardless of the sender’s “subjective intent.” The Court also declined to adopt the Third Circuit’s test that the communication must, at a minimum, be intended to “induce payment” in order to be a communication in connection with debt collection.

The Court went even further and held that the transfer notice was actual debt collection because it contained the standard FDCPA disclaimer that, among other things, the notice “was an attempt to collect the debt” and that the borrower had 30 days to dispute the debt. The Court reasoned that a “reasonable consumer” would credit these statements as an attempt to collect a debt, and thus disclosure obligations under § 1692g must be made in that communication or within five days after.

The Hart decision clearly has significant consequences for nonbank servicers that acquire pools of distressed loans. Servicers face both individual and class action exposure if their RESPA transfer servicing notices contain boilerplate FDCPA disclaimers but fail to set forth each of the disclosures required by § 1692g of the FDCPA. Servicers should immediately review their servicing transfer policies and procedures to ensure that these FDCPA disclosures are provided as part of the initial transfer notice or within five days after.

- Justin Angelo

Welcome to Wendy Tran

We are pleased to welcome Wendy Tran, a consumer financial services, mortgage banking, and privacy and data security attorney, as the newest member of our Mortgage Banking Group.

Wendy is an associate in the firm's Washington, D.C., office and advises mortgage banking industry clients on the full range of state and federal mortgage banking and servicing-related statutes and regulations.

Before joining Ballard Spahr, Wendy was a regulatory compliance officer with Prospect Mortgage, LLC, as well as a legal fellow at the California Monitor Program, a program of the California Attorney General's Office, where she handled more than 450 consumer complaints related to mortgage servicing and loss mitigation issues.

She holds a J.D. from the University of Notre Dame School of Law, a Master of Dispute Resolution from Pepperdine University, and a B.A. from Pepperdine University.

- John D. Socknat


Copyright © 2015 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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