After (Another) Unusual Year, We’re Very Thankful and Wish You a Happy Thanksgiving

Bradley Arant Boult Cummings LLP

Now that the pandemic’s “social distancing” is lessening, we hope you are all able to gather with friends and family this Thanksgiving. As we do the same, we wanted to count our blessings as we review the year. This year, we are thankful for being able to return to our offices, our favorite restaurants, and movie theaters. We are also still thankful for food delivery services and the ability to work from home. And of course, we are profoundly thankful for the first responders who gave so much in 2021 and in 2020. For the financial services industry, we also are grateful for the following:

We’re Thankful for (At Least Some) of the CFPB’s August 31, 2021 COVID-19 Mortgage Servicing Final Rules

On June 28, 2021, the CFPB issued a set of COVID-19 mortgage servicing rules that became effective on August 31, 2021. As outlined in our June 29th blog post, these rules made a number of mortgage servicing-related changes that have a substantial impact on both consumers and mortgage servicers. At a high level, the primary components of the rule include a moratorium on certain new foreclosure actions through December 31, 2021, an exception to the anti-evasion clause for certain COVID-19 modification options, new early intervention communication requirements, and clarification on the reasonable diligence standard for borrowers in forbearance. While many aspects of the rule are pretty complex and burdensome, the CFPB’s new exception to the anti-evasion clause provides significant relief to mortgage servicers.

The anti-evasion clause has long prohibited – with some very limited exceptions – mortgage servicers from offering loss mitigation options based upon evaluations of incomplete applications. This clause has created significant tension within the mortgage industry during the COVID-19 pandemic and oftentimes has prevented servicers from providing borrowers with quick and efficient loss mitigation assistance. Fortunately, the new exception outlined in the CFPB’s COVID-19 mortgage servicing rules permits servicers from offering certain types of loan modifications without first collecting and evaluating a complete loss mitigation application. This exception is not only beneficial to borrowers but also to servicers as it should allow servicers to implement a much less burdensome and risky COVID-19 loan modification process for borrowers impacted by COVID-19.

We’re Thankful that Lessons Learned Provide the Industry with a Path to Prepare

Over the last 18 months, the COVID-19 pandemic has hit the financial service industry with unprecedented challenges that have required it to respond nimbly, quickly, and creatively. Part of that response required implementation of brand-new loss mitigation options, borrower contact requirements, and foreclosure moratoriums. Now, forbearance periods and foreclosure moratoriums are ending, leading to a likely increase in foreclosure activity in the next twelve months. With that increase in foreclosure activity, we anticipate an increase in regulatory scrutiny – not just from the CFPB but also from state Attorneys General. First, we are thankful that housing prices have continued to increase (likely preventing a repeat of the full-scale foreclosure crisis from earlier this century). Second, we are thankful we can leverage our past experiences to ensure we are prepared for any future oversight activities that may be coming. Those historical lessons are discussed in more detail in: A Tale of Two Crises: What 2008 Foreclosures Can Teach Us About Attorney General Enforcement Following COVID-19 | Corporate Compliance Insights, by Robert Maddox and Anna Craft.

We’re Thankful for the Opportunity to Help Debt Collectors Comply with Regulation F

It has been a busy year as debt collectors, loan servicers, and even some first party creditors have worked to implement Regulation F, and with the November 30, 2021 implementation date looming, the year is not over yet. Regulation F has generated significant discussion about when consumers can be contacted, how often consumers can be contacted, the use of modern technologies to contact consumers, the new debt validation notice, and a host of other issues. The rules have been particularly difficult for loan servicers who must balance some of Regulation F’s restrictions against state and federal law and investor requirements that require servicers to contact consumers and who must adapt their systems to generate information that previously was unnecessary. While the CFPB’s October FAQs provide some important clarification, Regulation F, like most new regulations, contains significant grey areas and left industry participants hoping for additional clarity. While the lead up to November 30, 2021 has been a wild ride, we are thankful for the opportunity to have assisted so many in the debt collection industry as they work to ensure compliance by the implementation date.

We’re Thankful for Additional Insight on Dodd-Frank 1071 (but Feel a Little Bit like the Turkey who Didn’t Get Pardoned)

After 10 years, the CFPB finally has published a Notice of Proposed Rulemaking regarding Dodd-Frank 1071, a HMDA-like statute requiring business lenders, MCA companies, and other players in the business finance space to identify women-owned, minority-owned, and small businesses and collect data related to — among other things — the race, sex, and ethnicity of the business owners, the purpose of the loan, the action taken with regards to the loan, the business’s gross annual revenue, and “any additional data that the [CFPB] determines would aid in fulfilling the purposes of this section.” The CFPB’s September 1 NPRM, though, is substantially broader than what stakeholders anticipated, and the Bureau has proposed a relatively aggressive 18-month implementation timeline.

With the comment period currently open and ending January 6, 2022, the time to talk turkey is now. Stakeholders should feel encouraged to pull up a chair at the Thanksgiving dinner table and, like that slightly eccentric uncle, freely offer an opinion (or at least ask your trade organization to offer an opinion). It will be challenging for regulated entities to satisfy the Section 1071 mandates, and implementation ultimately will result in the increased availability of data necessary to allege fair lending claims, thus increasing the risk of liability. Consequently, stakeholders should actively participate in the rulemaking process.

We are Thankful for the Opportunity to Assist our Clients with Nuanced Privacy Issues

The FTC finalized its amended GLBA Safeguards Rule, which imposes several new requirements for information security programs on both financial institutions and their service providers. The amended rule requires written risk assessments, designation of a single “qualified individual” responsible for overseeing and implementing the security program, ongoing monitoring of service providers, and periodic reporting to the board of directors.

The FTC, the Federal Bank Regulatory Agencies, as well as state agencies, have taken steps to address cybersecurity risk. The FTC is currently seeking comment on whether to amend the Safeguards Rule to require financial institutions to report certain data breaches and other security events to the Commission. Meanwhile, the Federal Banking Agencies (the OCC, the Board, and the FDIC) approved a final rule that requires banking organizations to notify its primary federal regulator of certain computer security incidents no later than 36 hours after the determination that such an incident has occurred.

State legislatures in Virginia and Colorado passed privacy legislation this year, in addition to the passage of a ballot initiative in California, and we anticipate the possibility of other states following suit.

We have seen numerous CCPA-related class actions filed that focus on compliance, as well as, the technology sector, which impacts the financial services industry. In particular, this litigation has focused on data disclosure and processing practices.

We’re Thankful for the Small Dollar Consumer Lending Industry Seeing Fewer Consumer Complaints and Improving Customer Relationships in 2021

In March of this year the CFPB provided its Consumer Response Annual Report for 2020 to Congress, which stated the complaint volume for payday loans “decreased significantly in 2020” (down 24%) and personal loans (listing installment loans, personal lines of credit and pawn loan as “types” in this category) stayed relatively the same. The decline in consumer complaints in this area was one of the only three categories (out of 13 total) in the CFPB’s 2020 Consumer Response Annual Report that saw a decline during the pandemic. The report also showed a large number of small dollar loan consumer accounts that were settled or written off due to consumers struggling to pay their loan. This speaks to the importance of customer relationships in this industry and shows that lenders worked with consumers during the pandemic last year despite no legal obligation to do so under the CARES Act. Despite this overall decrease in small dollar lending consumer complaint volume, the CFPB indicated in an earlier statement this year that it is focusing its attention on small dollar lending activity as previously discussed on our financial services blog.

We’re Thankful So Many Americans Received Mortgage Forbearance Relief and that More Help Is Coming to Consumers

Last year, as many Americans suffered from the effects of the COVID-19 pandemic,  President Trump signed the Coronavirus Economic Stabilization Act of 2020 (CARES Act). The CARES Act directed more than $2 trillion toward addressing the COVID-19 pandemic and stimulating America’s economy for the duration of the pandemic. According to Black Knight, as of July 20, 2021, of the 7.3 million Americans who obtained COVID-19-related forbearance, approximately 1.86 million remain in active plans.

Additionally, among other relief provided to borrowers, the American Rescue Plan Act provides up to $9.961 billion for states, the District of Columbia, and territories to prevent mortgage delinquencies and defaults, foreclosures, and displacement of homeowners experiencing financial hardship after January 21, 2020. Similar to the hardest hit funds in prior years, funds from the Homeowner Assistance Fund (HAF) may be used to assist with mortgage payments, homeowner’s insurance, utility payments, and other specified purposes. At a minimum, $50 million is allocated to each state, the District of Columbia, and Puerto Rico, with additional funds allocated to tribes and territories. States are seeking approval of their HAF plans from the Treasury, and they already are coordinating with mortgage servicers on the rollout of HAF assistance. As of today, only Ohio and New York have approved plans, but more are expected soon. A great resource on state’s HAF programs can be located here.

We’re Thankful for Additional COVID-Related Relief in Consumer Bankruptcy Cases

As the pandemic continued to cause financial turmoil and uncertainty for many Americans this year, we’re thankful Congress passed the Consolidated Appropriations Act, 2021 (CAA 2021) to help both consumers and creditors involved in bankruptcy cases. The CAA 2021 temporarily revised certain provisions of the Bankruptcy Code. For instance, consumer debtors who defaulted on up to three monthly mortgage payments due to circumstances arising from COVID-19 may still receive chapter 13 bankruptcy discharges. Additionally, CARES Act relief (such as foreclosure or eviction moratoriums or mortgage forbearances) may not be refused to consumers due to their current or prior bankruptcy filings. Not to be left out, mortgage servicers also found relief under the CAA 2021 in that they could now file supplemental proofs of claim in consumer bankruptcy cases for mortgage claims that were forborne, deferred, or otherwise modified under the CARES Act. In addition, the CAA 2021 allows mortgage servicers to file motions to modify chapter 13 bankruptcy plans to provide for payment of such supplemental proofs of claim. As we hopefully emerge from the pandemic in the near future, we remain grateful for the aid offered by the CAA 2021 and consumer bankruptcy laws as we navigate these unprecedented circumstances.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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