United States: Did The CFPB Have The Legal Authority To Issue Default Mortgage Servicing Regulations Under RESPA?

It has been over 35 years since I took Administrative Law in law school, but I remember well the basic legal maxim that an executive agency, independent or otherwise, derives its power and authority to regulate from the US Congress. The threshold question for any agency's regulatory initiative is whether Congress delegated specific or general authority to that agency to regulate in the contemplated manner. The swarm of recent Requests for Information issued by the "new" Consumer Financial Protection Bureau ("CFPB") triggered this memory when I read the CFPB's request for views on the manner in which the CFPB previously had exercised this rule-making authority. I want to highlight one area where I think the CFPB went too far—namely, its extensive default servicing regulations under the Real Estate Settlement Procedures Act ("RESPA"), which became final on January 1, 2014, with subsequent revisions and as to which RESPA provides a private right of action for violations. However well motivated in light of the concern over foreclosures, these regulations are a classic example, I believe, of regulatory overreach.

The 2010 Dodd-Frank Act ("DFA") gave broad rule-making authority to the CFPB. It transferred rule-making authority to the CFPB for virtually all of the existing consumer credit laws, such as RESPA and the Truth in Lending Act ("TILA"). It imposed new statutory obligations on the consumer credit industry and delegated mandatory authority to the CFPB to issue regulations to implement these new statutory requirements, such as the "ability to repay" rules on the residential mortgage industry. It also empowered the CFPB to police unfair, deceptive and abusive acts and practices ("UDAAP") and provided discretionary authority to the CFPB to issue regulations if it wanted to specify with more detail what constitutes an illegal UDAAP.

Many of those who have been highly critical of the CFPB's rapid fire regulations over the first several years of its existence forget that Congress mandated the CFPB to promulgate many of the new regulations it promulgated. That does not mean that the CFPB had to be so gleeful in its response. Little wonder, though, that the enactment of the DFA without bi-partisan support, coupled with the establishment of a new independent agency with a single purpose—to protect consumers against the backdrop of the raw wounds from the financial crisis—would result in an activist agency. But, laws are laws, and the CFPB still had to operate within the authority given to it by Congress. So, what does the DFA say about mortgage loan servicing?

The DFA imposed several new servicing prohibitions and new requirements on residential mortgage servicers in new Subtitle E of Title XIV through amendments of TILA and RESPA. Subtitle E amended TILA to require creditors to establish five-year escrow or impound accounts to pay taxes, hazard insurance and any other necessary insurance in many situations. For consumers who have the authority to waive escrow services, the creditor must provide the consumers with disclosures that clearly explain the consumers' responsibilities. Servicing amendments of TILA also require prompt crediting of borrower mortgage payments on the day of receipt, except where the failure to credit promptly does not have adverse impact on the borrower, prompt mailings of pay-off requests within seven days of request and monthly mailing of periodic billing statements that contain specified content.  

Section E amended Section 6 of RESPA to require servicers to refund balances in escrow accounts within 20 days after payoff. It also amended Section 6 of RESPA to prohibit mortgage servicers from obtaining force-placed insurance without a reasonable basis to believe that the borrower has not maintained property insurance, charging fees to borrowers for responding to valid written requests, failing to promptly respond to requests about errors in payment allocation, and  failing to respond within 10 business days to a request to provide information about the loan owner. 

Sticking out like a sore thumb is any provision in Subtitle E's amendments to RESPA or TILA imposing substantive requirements regarding the handling of loans in default, such as a continuity of contact requirement through a single point of contact or a prescriptive mandate to meet strict deadlines for notice, consideration, evaluation, decisioning and appeals of available loss mitigation options. Yet a large part of the CFPB servicing regulations comprises  these provisions. What is their origin?

The amendment of RESPA through the DFA's Subtitle E of Title XIV added a "catch all" provision—Section 6 (k)(1)(E) —prohibiting a servicer from failing to comply with any other obligation found by the CFPB "...by regulation to be appropriate to carry out the consumer protection purposes of this Act [RESPA]." So how did the CFPB squeeze detailed loss mitigation requirements out of RESPA? What does RESPA have to do with loss mitigation as an alternative to foreclosure?

Enacted in 1974, neither the purposes nor the provisions of RESPA addressed residential mortgage loan servicing, with one narrow exception. Quite the contrary.  Congress originally enacted RESPA to reform the real estate settlement process to insure that consumers are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices in some parts of the country, such as kick-backs for the referral of real estate settlement services. The one exception related to servicing pertained to escrow accounts.

Section 10 of the original RESPA prescribed limits on the amounts a lender, in connection with a federally related mortgage loan, could require the borrower or prospective borrower to deposit in any escrow account established for the purpose of assuring payment of real estate taxes and insurance premiums. Several years later, in 1990, Congress amended RESPA to add a new Section 6 requiring notices of transfers of servicing and responses by servicers to borrowers "qualified written requests" within a prescribed time period. 

The CFPB glossed over this important background of RESPA in the proposed regulation promulgated by the agency in 2012. According to the preamble to the proposed regulation:

"[[t]his provision gives the Bureau broad authority to adopt additional regulations to govern the conduct of servicers of federally related mortgage loans. In light of the systemic problems in the mortgage servicing industry, the Bureau is proposing to exercise this authority to require servicers of federally related mortgages to: establish reasonable information management policies and procedures; undertake early intervention with delinquent borrowers; provide delinquent borrowers with continuity of contact with staff equipped to assist them; and require servicers that offer loss mitigation options in the ordinary course of business to follow certain procedures when evaluating loss mitigation applications."

Interestingly, the CFPB did not cite any foundation within the consumer protection purposes of RESPA to support the proposed regulations on loss mitigation. It instead focused on the existence of "systemic problems in the mortgage servicing industry" without reference to or grappling with the actual more limited delegation of authority in the DFA to provide legal support. Think about the contorted logic. The syllogism goes like this: (1) if there is a social problem, there is legal authority to regulate a solution under RESPA. (2) Default mortgage servicing presents a social problem. (3) Therefore, there is legal authority under RESPA to regulate default servicing. 

The CFPB did not have to overreach to address certain of its concerns with default servicing. It did and does have explicit statutory authority to engage in UDAAP rulemaking, and the CFPB could have sought to stake out a case under UDAAP principles to regulate default servicing. There, however, were two problems with using UDAAP. First, it is possible that the CFPB could not have relied on UDAAP to develop an as detailed, prescriptive approach as it ultimately promulgated. Second, and perhaps more importantly, Section 6 of RESPA provides a federal private right of action for violations that enables consumers to sue for damages. A federal private right of action for violations of UDAAP is not available.

Servicers have over time integrated the CFPB's servicing regulations on loss mitigation into their day-to-day operations, and they may be reluctant to undertake the time, energy, effort and expense to undo these operational requirements even if the CFPB were willing to modify the default servicing regulations. Moreover, the protections afforded consumers through the servicing regulations clearly have value, even if perhaps they are overbroad and not supported by RESPA as the DFA required. Lastly, states have codified many of these requirements, and more states likely would do so if the federal requirements were diluted. But, regardless of whether the default servicing regulations make policy, economic or practical sense, my aim is to address the narrow legal issue of whether the CFPB overreached its statutory delegation of authority. I think it did.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2018. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions