Maryland Legal Alert for Financial Services
Maryland Legal Alert - May 2021
IN THIS ISSUE:
ELEVENTH CIRCUIT RULES THAT TRANSMITTING CONSUMER’S INFORMATION TO A THIRD-PARTY VENDOR MAY EXPOSE DEBT COLLECTOR TO FDCPA LIABILITY
CFPB SEEKS TO DELAY EFFECTIVE DATE OF DEBT COLLECTION RULE
CFPB SIGNALS INCREASED FOCUS ON PROTECTING HOUSING SECURITY IN THE WAKE OF COVID-19
RESIDENTIAL FORECLOSURE RESTRICTIONS EXTENDED AGAIN
Eleventh Circuit Rules that Transmitting Consumer’s Information to a Third-Party Vendor May Expose Debt Collector to FDCPA Liability
The U.S. Court of Appeals for the Eleventh Circuit issued a recent ruling in a matter of first impression that could lead to an influx of lawsuits against debt collectors under the Fair Debt Collection Practices Act (FDCPA).
In this case, the debt collector electronically transmitted certain data concerning the consumer’s debt — including the consumer’s name, the outstanding balance and the source of the debt — to a third-party vendor. The vendor used that data to create and mail a demand letter to the consumer. The consumer filed suit against the debt collector, arguing that the debt collector violated FDCPA Section 1692c(b)’s prohibition against communicating a consumer’s personal information to a third party “in connection with the collection of any debt.”
The debt collector moved to dismiss and the lower court granted the motion, reasoning that the language of the communication controls whether the communication was made in connection with the collection of a debt. That is, since the data transmission to the vendor itself did not contain an express or implied demand for payment, the lower court held that the transmission was not made in connection with the collection of any debt and did not violate Section 1692c(b).
The Eleventh Circuit reversed, holding that the consumer had stated a viable claim under Section 1692c(b). The Eleventh Circuit held that the plain language of Section 1692c(b) covered the debt collector’s transmission of consumer data to its vendor. The transmission included specific information regarding the consumer’s debt, and under a common sense reading of the statute, the transmission was made with reference to and bore a relation to the collection effort.
The Eleventh Circuit further reasoned that the lower court incorrectly held that a communication in violation of Section 1692c(b) necessarily includes a demand for payment. The Eleventh Circuit noted that such a reading would render redundant the exceptions to Section 1692c(b), which include communications to third parties, such as credit reporting agencies, the creditor or the attorney of the debt collector, since many communications to those parties would not include an express or implied payment demand. Given the statute’s ordinary meaning, the court also rejected the debt collector’s claim that violations of Section 1692c(b) should be evaluated based on a multifactor analysis.
Practice Point:The court similarly rejected the debt collector’s “industry practice” argument, namely, that third-party mail vendors are widely used in the industry and this practice has not been previously raised as an FDCPA violation. The court did, however, recognize that its ruling could upset the status quo in the debt collection industry, result in increased costs for participants and force debt collectors to move away from outsourcing some debt collection functions. Debt collectors should evaluate their use of third-party vendors to determine whether they are exposed to potential FDCPA liability under Section 1692c(b).
Please contact Bryan M. Mull with any questions concerning this topic.
Contact Bryan M. Mull | 410-576-4227
CFPB Seeks to Delay Effective Date of Debt Collection Rule
In recent months, we reported on the long-awaited debt collection rule from the Consumer Financial Protection Bureau (CFPB), which the bureau issued in two parts (See our summaries of Part I and Part II). The final rule — which addressed communications with debtors, validation notices, passive debt collection and time-barred debt — was set to become effective on November 30, 2021.
On April 7, 2021, the CFPB issued a proposal to extend the effective date of the final debt collection rule by 60 days to January 29, 2022. The CFPB contends that such an extension will provide interested parties additional time to prepare for the new rule while continuing to deal with the fallout of the COVID-19 crisis. The CFPB also sought comment on retaining the original effective date as to certain safe-harbor provisions in the debt collection rule.
Please contact Bryan M. Mull with any questions concerning this topic.
For additional information on the impact of the coronavirus, visit our information hub for a list of up-to-date content.
Contact Bryan M. Mull | 410-576-4227
CFPB Signals Increased Focus on Protecting Housing Security in the Wake of COVID-19
In recent weeks, the Consumer Financial Protection Bureau (CFPB) has taken several actions that signal the bureau’s increased focus on protecting tenants and homeowners dealing with COVID-19 hardships.
Interim Final Rule on Evictions
On April 22, 2021, the CFPB issued an interim final rule, which is intended to bolster the eviction moratorium order of the Centers for Disease Control and Prevention (CDC). The CDC issued its initial order temporarily halting residential evictions of certain covered persons for nonpayment of rent on September 4, 2020. That order was set to expire on December 31, 2020, but has since been extended to June 30, 2021.
The CFPB’s interim final rule, which is effective May 4, 2021, applies to debt collectors, as that term is defined under the Fair Debt Collection Practices Act. The interim final rule requires debt collectors seeking to evict tenants for nonpayment of rent to provide a clear and conspicuous written notice to tenants that they may have rights under the CDC order. The notice must be provided on the same date as the eviction notice, or, if no eviction notice is required by law, on the date that the eviction action is filed. The interim final rule includes sample disclosures.
The interim rule also prohibits debt collectors from falsely representing or implying to a consumer that the consumer is ineligible for temporary protection from eviction under the CDC order.
Proposed Rule Changes for Regulation X Mortgage Servicing Rule
For mortgage borrowers, the CFPB has expressed concern over how servicers will manage a flood of borrowers exiting forbearance terms under the Coronavirus Aid, Relief, and Economic Security Act at the same time that the federal foreclosure moratoria are set to expire on June 30, 2021. On April 5, 2021, the CFPB issued a notice of proposed rulemaking, proposing temporary amendments to the Mortgage Servicing Rule under Regulation X to address these concerns. Highlights from the proposed rule include:
- Foreclosure Moratorium. The proposed rule includes a prohibition on initiating foreclosures through December 31, 2021.
- Early Intervention/Live Contact. The proposed rule includes several changes to the servicer’s live contact requirements under Section 1024.39:
- For borrowers not yet in a forbearance plan, a servicer must ask the borrower if they are experiencing a COVID-19-related hardship. If so, the servicer must list and describe forbearance programs made available to that borrower and advise the borrower of the actions they must take to be evaluated for those options.
- For borrowers in a forbearance plan, a servicer must identify the date that the borrower’s forbearance program ends and list and describe to the borrower their available loss mitigation options to resolve any delinquency. The servicer also must inform the borrower of the actions the borrower must take to be evaluated for such loss mitigation options.
- Loss Mitigation Due Diligence. The proposed rule seeks to modify the commentary to Regulation X to clarify that a servicer must contact a borrower at least 30 days before the expiration of a short-term COVID-19 hardship forbearance period to determine whether the borrower wishes to pursue their loss mitigation options.
- Loss Mitigation Applications. The proposed rule includes an additional loss mitigation option for servicers evaluating an incomplete loss mitigation application for borrowers experiencing COVID-19 hardship. Under the proposed rule, a servicer could offer a loan modification under the following conditions:
- The loan modification does not extend the term of the loan beyond 40 years from the date of the modification;
- The servicer does not increase the borrower’s monthly payment;
- Any amounts that are deferred to the maturity date cannot accrue interest; and
- The servicer must waive all existing late fees, penalties, stop payment fees or similar charges.
Servicers that qualify as “small servicers” are not subject to these proposed rules.
CFPB Rescinds Prior COVID-19 Guidance
During the early stages of the COVD-19 disruptions, the CFPB issued a policy statement indicating that the bureau would take into account staffing and related resource challenges confronting financial institutions and their counsel when the CFPB engaged in its supervisory activities and enforcement actions. Shortly thereafter, the CFPB also issued an interagency statement with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency, in which the federal authorities stated that they did not expect to take public enforcement action during the health emergency under certain circumstances, provided that the circumstances were related to the health emergency, and the institution made good faith efforts to support its borrowers and comply with the consumer protection requirements.
After more than year has passed and with conditions improving, the CFPB recently announced that it has rescinded these policy statements, effective April 1, 2021. In its rescission notice, the CFPB announced that it intends to “exercise its supervisory and enforcement authority consistent with the Dodd-Frank Act and with the full authority afforded by Congress consistent with the statutory purpose and objectives of the Bureau.”
Practice Point: Recognizing that many COVID-19-related consumer protections are expiring in the coming months, the CFPB appears to have made housing security a priority. Debt collectors and mortgage servicers should review their policies and ensure they are staying abreast of these developments.
Please contact Bryan M. Mull with any questions concerning these topics.
For additional information on the impact of the coronavirus, visit our information hub for a list of up-to-date content.
Contact Bryan M. Mull | 410-576-4227
Residential Foreclosure Restrictions Extended Again
As we previously reported, Governor Lawrence Hogan, Jr. issued an executive order on December 17, 2020 (December Order), in which he directed that the Maryland Department of Labor’s Commissioner of Financial Regulation (Commissioner) reopen the notice of intent to foreclose online registry (NOI Registry) on February 1, 2021. Governor Hogan had ordered the closure of the NOI Registry, which effectively halted the initiation of new residential foreclosures in Maryland. In the December Order, Governor Hogan also granted the Commissioner with the authority to delay the reopening of the NOI Registry through further regulatory guidance. The Commissioner previously extended the reopening of the NOI Registry on three occasions, most recently setting the reopening date for May 4, 2021.
On April 28, 2021, the Commissioner issued amended guidance further extending the reopening of the NOI Registry to July 1, 2021. As we previously reported, federal authorities had announced extensions of their own foreclosure moratoria through June 30, 2021.
Please contact Bryan M. Mull with any questions concerning the foreclosure restrictions and forbearance issues.
For additional information on the impact of the coronavirus, visit our information hub for a list of up-to-date content.