Maryland Legal Alert for Financial Services
Maryland Legal Alert - July 2021
IN THIS ISSUE:
CFPB ISSUES REG. E COMPLIANCE AID
EFT CLASS ACTION INVOLVES OREGON CREDIT UNION
MARYLAND EASES FORECLOSURE RESTRICTIONS
FEDERAL AUTHORITIES INCREASE EFFORTS TO BOLSTER HOUSING SECURITY
SECOND CIRCUIT CLARIFIES POTENTIAL LIABILITY UNDER FDCPA FOR SETTLEMENT OFFER
CFPB Issues Reg. E Compliance Aid
On June 4, 2021, the Consumer Financial Protection Bureau (CFPB) issued a compliance aid focused on compliance with the Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E (Reg. E). The release is a set of eight frequently asked questions (FAQs) with corresponding answers. The FAQs address a number of topics, including:
Whether Reg. E covers electronic fund transfers (EFTs) that arise after a consumer is fraudulently induced to share account access information;
Whether a financial institution can require a consumer to first contact the related merchants or file a police report before starting its investigation under Reg. E; and
Whether a financial institution can consider a consumer’s negligence when determining Reg. E liability.
The CFPB pointed to Reg. E official commentary that provides that “unauthorized EFT” under Reg. E includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery. The CFPB noted that financial institutions must view EFTs as unauthorized under Reg. E in situations where a consumer is deceived into providing an access device or account access information. The CFPB also confirmed that a financial institution cannot consider a consumer’s negligence in determining Reg. E liability and cannot delay starting a Reg. E investigation on the condition that a consumer first contact the underlying merchant and/or file a police report.
Practice Pointer:Financial institutions should carefully examine their Reg. E error resolution procedures to ensure that such procedures do not improperly deny and/or delay Reg. E claims in situations where consumers have been deceived into providing account access information and have received no benefit from the resulting EFTs. Of particular note is a recent class action (discussed below) filed in Oregon alleging systematic Reg. E violations in situations where consumers provided account access information to third parties impersonating the financial institution that issued the related access device.
Please contact Christopher R. Rahl for questions concerning this topic.
Contact Christopher R. Rahl | 410-576-4222
EFT Class Action Involves Oregon Credit Union
On June 3, 2021, a class of plaintiffs filed suit against an Oregon credit union for alleged violations of the Electronic Fund Transfer Act (EFTA), as implemented by Regulation E (Reg. E).
Plaintiffs allege that a third party fraudulently misrepresented himself as a representative of the credit union on a phone call while trying to obtain a member’s debit card information. Using the account information, the fraudster made charges to and transferred money from the member’s accounts at the credit union.
Financial institutions are obligated to treat transactions initiated through fraud or robbery as unauthorized electronic fund transfers (EFTs) under Reg. E. The class action alleges that the credit union systematically violated EFTA requirements by denying Reg. E claims where account access credentials were obtained through deception, fraud or both as well as where the credit union believed a member had been insufficiently protective of their account information.
We will continue to monitor this case and provide updates as it progresses. In the interim, financial institutions should examine Reg. E error resolution policies to verify that claims involving access credentials obtained through fraud, deception or robbery are properly processed.
Please contact Christopher R. Rahl concerning this case or Reg. E compliance.
Contact Christopher R. Rahl | 410-576-4222
Maryland Eases Foreclosure Restrictions
As we previously reported, the Commissioner of Financial Regulation (Commissioner) is set to reopen the notice of intent to foreclose online registry (NOI Registry) on July 1, 2021. The NOI Registry has been closed pursuant to Governor Lawrence J. Hogan, Jr.’s executive order restricting evictions and foreclosures (Executive Order), which the Commissioner had extended on several occasions.
On June 28, 2021, the Commissioner issued guidance confirming that the NOI Registry would reopen July 1, which will enable lenders to initiate new residential foreclosures for the first time in more than a year.
The Commissioner’s guidance comes on the heels of Governor Hogan’s recent declaration that the Executive Order will terminate August 15, 2021.
While lenders may initiate the foreclosure process starting July 1, the Commissioner’s recent guidance cautions that the Executive Order remains in effect until it expires August 15. Among other things, the Executive Order requires that lenders furnish a forbearance rights notice to the borrower before sending out the notice of intent to foreclose.
Practice Pointer: Though the NOI Registry reopens July 1, lenders that can afford to wait an additional 45 days may want to delay resumption of foreclosure activity until the Executive Order terminates to avoid any of the additional notice or forbearance burdens under the Executive Order.
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
Federal Authorities Increase Efforts to Bolster Housing Security
While Maryland and other states are rolling back some foreclosure restrictions, federal authorities have recently announced steps to prevent or mitigate against the anticipated wave of borrowers exiting forbearance or other loss mitigation programs in the coming months.
First, the authorities controlling federally backed mortgages announced extensions of their respective foreclosure moratoria (Federal Housing Finance Agency, U.S. Department of Agriculture and U.S. Department of Housing and Urban Development) for federally backed loans, which are now set to expire July 31, 2021.
Also, we previously reported on the Consumer Financial Protection Bureau’s (CFPB) proposed rulemaking, in which the bureau proposed temporary amendments to the Mortgage Servicing Rule under Regulation X (Reg. X) to address its 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 28, 2021, the CFPB released its final rule, amending certain provisions in Reg. X regarding additional assistance for borrowers experiencing a COVID-19-related hardship.
The final rule, which has an effective date of August 31, 2021, largely aligns with the proposed rule issued in April and includes the following provisions:
Foreclosure Moratorium
The final rule prohibits initiating a foreclosure through December 31, 2021. However, unlike the blanket prohibition in the proposed rule, the final rule includes several off-ramps that enable a lender to initiate a foreclosure before then, such as:
- The borrower was evaluated based on a complete loss mitigation application and the conditions to foreclosure are met;
- The property is abandoned;
- The borrower has been unresponsive to servicer outreach;
- The borrower was more than 120 days delinquent before March 1, 2020; or
- The applicable statute of limitations will expire before January 1, 2022.
Early Intervention and Live Contact
The final rule includes several changes to the servicer’s live contact requirements under Section 1024.39 (through October 1, 2022):
- For a borrower not yet in a forbearance plan, the servicer must inform the borrower that programs are available if they are experiencing a COVID-19-related hardship and 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. The servicer also must advise borrowers of at least one way that they can locate contact information for housing counseling services.
- For a borrower 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 as well as the actions the borrower must take to be evaluated for such loss mitigation options. The servicer also must advise the borrower of at least one way that they can locate contact information for housing counseling services.
Loss Mitigation Due Diligence
The final rule modifies the commentary to Reg. 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 final rule includes an additional loss mitigation option for a servicer evaluating an incomplete loss mitigation application for a borrower experiencing COVID-19 hardship. Under the 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 deferred to the maturity date cannot accrue interest;
- The modification is available to a borrower with a COVID-19 hardship; and
- The servicer must waive all existing late fees, penalties, stop payment fees or similar charges.
Servicers that qualify as “small servicers” under the Mortgage Servicing Rule are generally not subject to these rules.
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
Second Circuit Clarifies Potential Liability Under FDCPA for Settlement Offer
In a recent decision, the U.S. Court of Appeals for the Second Circuit held that a debt collector was not liable under the Fair Debt Collection Practices Act (FDCPA) for sending a settlement offer letter that did not specify that interest was accruing on the debt.
The case concerned a credit card debt sent to a collection firm. The debt collector sent a settlement offer letter to the consumer that presented three different settlement options, each of which would result in a discount on the total amount owed on the debt. The letter did not specify that interest continued to accrue on the outstanding balance.
The consumer filed a lawsuit against the debt collector, arguing that the debt collector’s settlement offer letter violated the FDCPA’s prohibition against falsely representing the character, amount or legal status of any debt.
Relying on a prior Second Circuit case, Avila v. Reixinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), the trial court granted summary judgment in favor of the consumer. In Avila, the court had held that a debt collector’s failure to advise that interest and other fees continued to accrue on the balance stated in a dunning letter violated the FDCPA. The Avila court also set forth the following two safe harbors for collection notices to avoid liability on this issue:
- The collection notice accurately informs the consumer that the debt amount stated in the letter will increase over time; or
- The letter clearly states that the debt holder will accept payment in the amount set forth in the letter in full satisfaction of the debt if payment is made by a specified date.
In this case, the lower court held that a debt collector must advise a debtor that the balance continues to increase even if the letter sets forth a specified amount that the debt holder would accept in full satisfaction of the debt. The Second Circuit disagreed, clarifying that a debt collector may fall into either one of the Avila safe harbors. Since the debt collector’s settlement offer letter fell within the latter safe harbor, the Second Circuit held that it had not committed an FDCPA violation.
Practice Pointer: Debt collectors should review their correspondence to ensure that their balance representations fall within one of the safe harbors. In any event, it still may be advisable to note that interest and fees continue to accrue on a balance where that is the case.
Please contact Bryan M. Mull with any questions concerning this topic.