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Wednesday, October 16, 2013

Does the CFPB's Updated Mortgage Servicing Rule Impact Lender-Placed Insurance?

The Consumer Financial Protection Bureau yesterday issued an interim final rule clarifying servicer obligations when a borrower is in bankruptcy or sends a cease communication request under the Fair Debt Collection Practices Act.

The question for many ABIA members is if this interim final rule will effect lender-placed insurance. According to ABIA's interpretation of the CFPB's Bulletin accompanying the interim final rule, lender-placed insurance notice and filing requirements are not likely to be effected.

From the CFPB's Bulletin, page 7:
These servicing rule provisions, respectively, require the servicer to provide borrowers with (1) disclosures regarding the forced placement of hazard insurance, (2) a disclosure regarding an ARM’s initial interest rate adjustment, and (3) a periodic statement for each billing cycle. The CFPB has determined that a servicer acting as a debt collector would not be liable under the FDCPA for complying with these requirements despite a consumer’s “cease communication” request. These disclosures are specifically mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),23 which makes no mention of their potential cessation under the FDCPA and presents a more recent and specific statement of legislative intent regarding these disclosures than does the FDCPA. Moreover, the CFPB believes that these notices provide useful information to consumers regardless of their collections status.

About the Interim Final Rule:
The interim final rule provides that if a borrower is in bankruptcy, a servicer is not required to provide periodic statements or comply with the servicing rule’s early intervention requirements. Similarly, servicers are not required to comply with the early intervention requirements when a borrower has invoked the FDCPA’s cease communication provisions.

The updated rule was accompanied by guidance regarding communications with heirs to deceased borrowers as well as examples of reasonable steps for establishing live contact with delinquent borrowers. In addition, the guidance serves as an advisory opinion interpreting the interplay between the cease communication provision of the FDCPA and various disclosures required by the servicing rules.

Read the CFPB’s guidance Bulletin. 

Read the interim final rule.