Consumer Finance Watchdog Demands Compliance Despite Upheaval

The Consumer Financial Protection Bureau (CFPB) recently modified the periodic statement requirements for bankruptcy scenarios and successors in interest—and they go into effect on April 19, 2018. If you are involved in mortgage servicing, you must understand and prepare for these changes to Regulations X and Z—even as the bureau undergoes its own strategic changes.

Financial services attorney Chrys D. Lemon provides a detailed look at the requirements for successors in interest and for debtors in bankruptcy in his live webinar for Eli Financial, “Update on Mortgage Servicing Requirements When a Person is a Successor in Interest or a Debtor in Bankruptcy.” He covers periodic statements, unmodified statements, single-billing-cycle exemptions, and the definition of a “successor in interest.”

Industry Watchers Waiting for What’s Next at CFPB

As you know CFPB was created by President Obama in 2011 and, now under a Trump Administration, is currently facing some choppy waters.

Background: The bureau, which focuses on fairness and transparency in mortgages, credit cards, and student loans, has a $605 million budget and 1,600 employees pulled from a variety of existing federal agencies, including the Federal Reserve and the Federal Trade Commission. From day one, Republicans in Washington, D.C. opposed the agency and its centralized structure. In early 2012 Obama skirted this opposition by making a controversial recess appointment to fill the director’s position.

New path: But Ohio treasurer Richard Cordray ended his term as CFPB director by abruptly resigning in late 2017, claiming that President Trump and Budget Director Rick Mulvaney worked to undermine him and the agency. And now, as acting director, Mulvaney has set about stemming its enforcement activities, dropping cases on payday lenders, and locking out department chiefs from major decisions, under the premise of making the agency more humble.

The bureau “has no accountability to anyone,” Mulvaney said in 2017, before becoming director. “It turns up being a joke. And that’s what the CFPB really has been in a sick, sad kind of way.”

Despite Controversy, Agency Retains Focus

While industry watchers remain vigilant, industry practitioners must be prepared to take action despite the upheaval surrounding the CFPB. After all, at least for now, the bureau continues its mission to protect consumers and make regulatory demands.

For instance, the agency boasts that since its founding it has: secured $11.9 billion in relief, handled 1.2 million complaints, and provided assistance to 29 million consumers. New requirements in Regulation X and Regulation Z may not grab headlines the say way Mulvaney’s statements do, but the rules will impact many of those in the bankruptcy business.

What to expect: In March, the agency released a FAQ help sheet to detail the changes. Some items to be aware of include:

  • Servicers must disclose in the transaction activity on modified period statements all payments received since the last statement.
  • A servicer cannot receive safe harbor under the Bankruptcy Code by sending period statements to a borrower.
  • A servicer is not required to send a new coupon book immediately upon learning that a borrower has entered bankruptcy.
  • The bankruptcy exemption for providing periodic statements and coupon books ceases to apply if the borrower reaffirms personal liability for the loan.
  • Confirmed successors in interest are borrowers for purposes of the periodic statement provisions, so the periodic statement modification requirements for borrowers in bankruptcy apply to the periodic statements supplied to that confirmed successor in interest in bankruptcy.

Perhaps the main change to be aware of, said financial services pro Jonathan R. Kolodziej, is the rule that services have to monitor whether a successor in interest is in bankruptcy.

“Yes, mortgage servicers do have to monitor whether a confirmed successor in interest is in bankruptcy and will, therefore, have to figure out how to include confirmed successors in interest in their standard bankruptcy checks,” Kolodziej wrote for Financial Services Perspectives. “This may mean obtaining a confirmed successor in interest’s Social Security number or figuring out another way to determine whether a confirmed successor in interest is impacted by bankruptcy.”

While the CFPB’s FAQ statement is helpful, said Kolodziej, its appearance just weeks before the rules are to go into effect will likely leave servicers scrambling.

Still, since the rule has been published for nearly a year already, claiming ignorance to the changes won’t work, Lemon warns. Act now to get the latest on what Regulation X and Z changes mean for you.

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