How Smaller Firms Are Not Exempt From the CFPB’s New Rules

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While the bulk of the new rules enacted by the Consumer Financial Protection Bureau (CFPB) are aimed at the bigger banks and servicers of consumer loans, small banks will also experience some changes.  The January 10, 2014 deadline for these rules to go into effect has already passed, meaning that all firms (including the small, community banks) must now comply with the new regulations with new procedures or face heavy fines. 

Since the smaller banks and lending firms are often unprepared for this level of in-house scrutiny and regulatory compliance measures, many will look to third-party vendors for solutions to handling the increased workload of ensuring all transactions are compliant.  According to the CFPB’s new rules, these smaller firms will be responsible for the actions of their third-party vendors—including all debt collection practices—making their financial interest in maintaining compliance even more significant. 

Since the CFPB has made it clear that all servicers, whether large or small, are expected to uphold the new regulations or suffer penalty, no firm will be given special consideration unless it services 5,000 or fewer mortgages as of the first of each year.  However, even in this special circumstance, the smaller firm must originate and own the loans.  If it services loans that are originated or owned elsewhere, the exemption does not apply, even if that total number of loans falls beneath the 5,000 cut-off amount. 

There are loss mitigation requirements that are also required of the small servicers.  A notice of foreclosure or filing of foreclosure cannot be processed until the borrower has reached 120 days of delinquency on his or her loan.  Additionally, the foreclosure cannot be continued and the sale cannot be conducted if a borrower is following specific actions stated within the loss mitigation agreement.  

Foreclosures Have Been Ruled By FDCPA As Debt Collection

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It is common knowledge that the housing market took a large turn for the worse over the past few years.  More and more foreclosures have put homeowners out of their home and placed banks scrambling to sell houses they thought were already sold. 

Recently, the Sixth Circuit U.S. Court of Appeals passed a judgment that made foreclosures on mortgages an act of ‘debt collection.’ This was done under the Fair Debt Collection Practices Act and it reversed a decision made by the lower courts. 

This decision basically states that third parties that are working through the foreclosure process need to abide by the FDCPA laws and regulations.  The decision was made in response to Glazer V. Chase Home Finance, LLC.  Glazer inherited a home only to discover there was still an active mortgage that Chase held.  Six payments were missed and  a law firm was contacted to start the foreclosure proceedings. 

The mortgage wasn’t owned by Chase, nor did it originate there.  Fannie Mae was the mortgage owner and Chase was assigned to service the originator.  This made the entire process more complicated for Glazer to find details of the proceedings out and made it difficult to settle the problem. 

Glazer sought a lawsuit for FDCPA damages but an Ohio judge sided with Chase and their lawyers instead and dismissed the case entirely.  The panel stated Chase wasn’t a debt collector; however the lawyers working to collect on the lien were considered debt collectors and expected to follow the guidelines of FDCPA.

This means that there are a set of regulations and guidelines mortgage collectors will be expected to follow.  Likewise debtors will also be expected to follow the laws and regulations.  With this kind of formalities imposed on the system there is expected to be smoother transitions and hopefully less homeowners put out of their home.