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CFPB regulatory implications on the loan modification industry

Author: LegalEase Solutions 

Title X of The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) Public Law 111-203, 124 Stat. 1376 (2010) created the Consumer Financial Protection Bureau (the “Bureau”).  Congress established the CFPB to protect consumers by carrying out federal consumer financial laws including writing rules, supervising companies and enforcing consume financial protection laws.

The Bureau issued certain regulations relating to mortgage assistance relief services, found in CFR  Title 12, Part 1015 (“Regulations”). The Regulations define a mortgage assistance relief services to mean any person that provides, offers to provide, or arranges for others to provide, any mortgage assistance relief service. The definition of mortgage assistance relief services is quite broad and includes any service, plan or program offered to a consumer in exchange for consideration that is represented to assist or attempt to assist a consumer with, among other things:

  • Stopping, obtaining, or arranging a modification of any term of a dwelling loan
  • Negotiating an extension of the period of time within which a consumer may cure his default, redeem a dwelling, etc.
  • Negotiating, obtaining, or arranging a short sale of a dwelling, deed in lieu of foreclosure, or generally any other disposition of a dwelling other than a sale to a third party.

The Regulations broadly prohibit the following conduct:

  • Upfront fees: It is against the law for mortgage relief providers to charge fees before services are provided. (§ 1015.5).    Attorneys who provide mortgage assistance relief services as part of the practice of law and are licensed in the state in which the consumer resides are exempt from this rule.
  • Representations and Misrepresentations.  Mortgage relief providers are prohibited from making certain representations and/or misrepresentations with regards to any material aspect of any mortgage assistance relief service including  their affiliation with government programs/agencies, instructions not to contact the lender, the amount of time it will take to accomplish any service, that the consumer will receive legal representation, misrepresentations regarding guaranteed results (§ 1015.3)
  • Assisting/Facilitating.  The Regulations prohibit any person from providing substantial assistance or support to any mortgage assistance relief service provider when the person knows or avoids knowing that the provider is violating the Regulations.

The Regulations also require very specific written disclosures to be provided by mortgage assistance relief service providers in every general commercial communication for any service (§ 1015.4).  Required disclosures include:

  • Disclosures that provider is not associated with the government
  • Disclosures informing consumers that they may stop using the providers service at any time and reject or accept any offer obtained by the provider from the lender.
  • Disclosures that rejection of an offer negates consumer’s obligation to pay for the service.
  • Disclosures regarding the possibility that a lender may not agree to change your loan

The Regulations also require a mortgage assistance relief provider to keep for a period of 24 months certain records including:

  • Contracts and agreements between the provider and any consumer
  • Copies of all written communication between the provider and any consumer prior to the date in which the consumer entered into an agreement with the provider
  • Copies of consumer files data kept in the ordinary course of business
  • Copies of materially different sales scripts, training materials, commercial