Supreme Court to Hear Oral Argument on Banking Case

Back in April of this year, I posted about the United States Supreme Court taking up review of a banking law case involving the Equal Credit Opportunity Act. At the time, we knew that the USSC would likely hear oral arguments on the case sometime during its October 2015 term. This week the USSC released its Oral Argument calendar for the Session beginning October 5, 2015 and guess what? The hot topic banking law case is set for oral argument on Monday, October 5! I’ll be watching closely to see when the Court issues its decision. For those that need a refresher on the issue that the Court is deciding, I am re-posting below my summary from April.

The United States Supreme Court recently accepted Certiorari review of a case from the 8th Circuit Court of Appeals involving whether a bank’s requirement that spouses execute commercial guaranties violates the protections of the Equal Credit Opportunity Act (ECOA). It’s not every day that the USSC takes up an issue on banking regulations, so this is one to watch.

For lenders and banking compliance folks, the facts of the case are pretty standard. A corporate borrower took out a loan with the bank. The husbands had an ownership interest in the corporate borrower, but the wives did not. The bank required the wives to sign guaranties of the debt. At some point the loan went into default and the wives sued the bank to have their guaranties declared invalid because, they argued, requiring their guaranties violated ECOA.

For those compliance folks reading this blog, you are probably predicting that the Judge ruled in favor of the wives and invalidated the guaranties. But if that were the case, I wouldn’t writing about it here, right?

The trial court judge ruled in the bank’s favor and said there was no violation of ECOA because the wives were not “applicants” within the meaning of ECOA. The 8th Circuit Court of Appeals agreed. The reasoning was as follows: The ECOA definition of “applicant” is “[A]ny person who applies to a creditor directly for an extension, renewal, or continuation of credit….” The Court explained:

[I]t does not follow from the execution of a guaranty that a guarantor has requested credit or otherwise been involved in applying for credit. Thus, a guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA.

Now, for those of you familiar with this area of the law, you are probably wondering where the Regulation B definition fits into this analysis. Reg B is the implementing regulation of the ECOA statute. Reg B explicitly states that guarantors are applicants within the meaning of ECOA.  The Reg B definition of applicant is:

 [A]ny person who requests or who has received an extension of credit from a creditor…. [T]he term includes guarantors….

The Appellate Court in this case did not apply Reg B because it applied a long-standing rule of statutory interpretation, which is that if a statute (here, ECOA) is clear on its face as to the intent of Congress, the court will not look to an agency interpretation/regulation (here, Reg B) for any further guidance. A court will only look to the agency regulation if statute is silent or ambiguous as to a specific issue. The Appellate Court here said ECOA was unambiguous with respect to the meaning of applicant not including guarantors so it would not consider the Reg B definition. Implicit in this ruling is a suggestion that the agencies did not have authority to include guarantors in the definition of applicants when they enacted Reg B.

The decision of the 8th Circuit Court of Appeals not only conflicts with how many professionals have been applying ECOA in their institutions, but also with how other courts have applied ECOA in other lawsuits. Because of this conflict among the courts, the USSC has accepted review of these issues. The questions that the USSC says it will decide are:

      1. Are “primarily and unconditionally liable” spousal guarantors unambiguously excluded from being ECOA “applicants” because they are not integrally part of “any aspect of a credit transaction”?
      2. Did the Federal Reserve Board have authority under ECOA to include by regulation spousal guarantors as “applicants” to further the purposes of eliminating discrimination against married women?

It is anticipated that the USSC will rule on these questions sometime later this year, a ruling that will be of interest to many in the banking and compliance industry for sure!

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Are Guarantors Applicants under ECOA?: The United States Supreme Court Will Decide This Issue.

The United States Supreme Court recently accepted Certiorari review of a case from the 8th Circuit Court of Appeals involving whether a bank’s requirement that spouses execute commercial guaranties violates the protections of the Equal Credit Opportunity Act (ECOA). It’s not every day that the USSC takes up an issue on banking regulations, so this is one to watch.

For lenders and banking compliance folks, the facts of the case are pretty standard. A corporate borrower took out a loan with the bank. The husbands had an ownership interest in the corporate borrower, but the wives did not. The bank required the wives to sign guaranties of the debt. At some point the loan went into default and the wives sued the bank to have their guaranties declared invalid because, they argued, requiring their guaranties violated ECOA.

For those compliance folks reading this blog, you are probably predicting that the Judge ruled in favor of the wives and invalidated the guaranties. But if that were the case, I wouldn’t writing about it here, right?

The trial court judge ruled in the bank’s favor and said there was no violation of ECOA because the wives were not “applicants” within the meaning of ECOA. The 8th Circuit Court of Appeals agreed. The reasoning was as follows: The ECOA definition of “applicant” is “[A]ny person who applies to a creditor directly for an extension, renewal, or continuation of credit….” The Court explained:

[I]t does not follow from the execution of a guaranty that a guarantor has requested credit or otherwise been involved in applying for credit. Thus, a guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA.

Now, for those of you familiar with this area of the law, you are probably wondering where the Regulation B definition fits into this analysis. Reg B is the implementing regulation of the ECOA statute. Reg B explicitly states that guarantors are applicants within the meaning of ECOA.  The Reg B definition of applicant is:

 [A]ny person who requests or who has received an extension of credit from a creditor…. [T]he term includes guarantors….

The Appellate Court in this case did not apply Reg B because it applied a long-standing rule of statutory interpretation, which is that if a statute (here, ECOA) is clear on its face as to the intent of Congress, the court will not look to an agency interpretation/regulation (here, Reg B) for any further guidance. A court will only look to the agency regulation if statute is silent or ambiguous as to a specific issue. The Appellate Court here said ECOA was unambiguous with respect to the meaning of applicant not including guarantors so it would not consider the Reg B definition. Implicit in this ruling is a suggestion that the agencies did not have authority to include guarantors in the definition of applicants when they enacted Reg B.

The decision of the 8th Circuit Court of Appeals not only conflicts with how many professionals have been applying ECOA in their institutions, but also with how other courts have applied ECOA in other lawsuits. Because of this conflict among the courts, the USSC has accepted review of these issues. The questions that the USSC says it will decide are:

      1. Are “primarily and unconditionally liable” spousal guarantors unambiguously excluded from being ECOA “applicants” because they are not integrally part of “any aspect of a credit transaction”?
      2. Did the Federal Reserve Board have authority under ECOA to include by regulation spousal guarantors as “applicants” to further the purposes of eliminating discrimination against married women?

It is anticipated that the USSC will rule on these questions sometime later this year, a ruling that will be of interest to many in the banking and compliance industry for sure!

 

Posted in Consumer Finance, Equal Credit, Fair Lending, Regulation B | Leave a comment

Contacting Represented Borrowers-Florida’s Consumer Protection Practices Act

Lenders who operate in Florida should already know that they are subject to consumer protection laws that are broader than the Federal counterpart. Under the current Federal Fair Debt Collection Practices Act (FDCPA), creditors are not considered debt collectors and are therefore not subject to the FDCPA rules and prohibitions. However, the Florida Consumer Collection Practices Act (FCCPA) applies equally to both creditors and third party debt collectors.

One of the specific prohibitions of the FCCPA is that “in collecting consumer debts,” a creditor may not communicate with a debtor if the creditor knows the debtor is represented by an attorney. For years this prohibition has created problems for unsuspecting creditors who have automated systems in place that send standardized form notices to their borrowers when their loans are past due. If the creditor was notified that the borrower was represented by counsel before the automated notice was sent, the creditor opened itself up to potential claims under the FCCPA for statutory damages. To further complicate things for the creditor, the borrower’s notice that he or she is represented by an attorney does not have to be in writing, but could be as simply as the borrower telling his or her loan officer on the phone that he or she had an attorney. The absolute rule of the FCCPA, combined with the case law that applied it, caught many creditors in a situation where they had to pay statutory damages and settle cases even though they did not intentionally or maliciously contact a represented borrower.

There is a glimmer of hope for creditors. One Circuit Court in Florida has ruled that certain notices to the debtor that are informational only are not attempts to collect debts and are therefore not enough to trigger a violation of the FCCPA, even if sent to a represented borrower. The notice that was the subject of this lawsuit notified the borrower that “Your loan is 13 payments past due, with a total amount due of $13,804.66.” The notice concluded by saying “We urge you to contact us at the phone number in the account information box above to confirm the amount to reinstate your loan,” and notifying the borrower that he could contact a Home Preservation Specialist with any questions. The Judge ruled that the letter was purely information and not an attempt to collect a debt.

In the end, although it may be possible to avoid liability in cases where notices can be seen as “for informational purposes only,” the result is still uncertain since other Florida courts may interpret the law differently. The best way for a creditor to avoid risk is to take care to make sure they have a procedure in place to identify accounts where the borrower has notified someone that he or she is represented by an attorney and stop the automated notices from being sent.

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Subordinate Lienholder Rights to Excess Proceeds From a Foreclosure Sale (Don’t Lose Them!)

Did you know that if you hold a subordinate lien on real property that you have a right to receive any excess proceeds from a foreclosure sale in a foreclosure action brought by the first lienholder? Did you also know that if you do not file a claim to the excess proceeds, you will lose that right and the property owner (who is likely the very same borrower that is not paying you for your loan) will get the excess proceeds free and clear?

One lender learned this hard reality in a recent case in Florida. Fifth Third Bank held a first mortgage lien on the property and filed a foreclosure action to foreclosure its lien. The foreclosure sale resulted in $85,899.06 in surplus of funds over and above what was owed to Fifth Third Bank. The surplus funds were placed in the court registry. Wells Fargo Bank held a second lien on the property. Wells Fargo did not file anything after the sale to make a claim to the exrcess proceeds. About three months after the sale, the property owners filed a motion asking the court to disburse the surplus proceeds to them. Wells Fargo Bank responded, and asked the court to disburse the proceeds to it instead of the owners. The trial court ruled in favor of Wells Fargo Bank, but the appellate court reversed, finding that Wells Fargo Bank was barred from claiming the surplus proceeds because it did not file a claim within 60 days following the sale, as required by Florida law. The result? The property owners received $85,000 and Wells Fargo Bank received nothing.

What does a subordinate lienholder need to do to protect its claim to surplus proceeds? Section 45.032 of the Florida Statutes sets forth the procedure. The subordinate lienholder must file a claim with the court within 60 days after the day the clerk of court issues the certificate of disbursements from the sale. The clerk usually issues the certificate of disbursements on the same day of the foreclosure sale, or shortly thereafter.

How does a subordinate lienholder know if there are excess proceeds to claim? The certificate of disbursements issued by the clerk after the foreclosure sale will state the foreclosure sale price, what amount was paid to the first lienholder, and what amount if any the clerk if holding as surplus proceeds.

How does a subordinate lienholder make sure they receive the certificate of disbursements? If you are a subordinate lienholder that was named as a defendant in the foreclosure action, you need to make sure you stay informed of the timing of the foreclosure sale and receive a copy of the certificate of disbursements. The best way to do this is to file an answer with the court in response to the initial foreclosure complaint. If you agree your lien is subordinate to the lien of the plaintiff in the foreclosure action, it might be tempting to do nothing and allow a default to be entered against you to avoid unnecessary paperwork. But that is a risky move, because often times a party against whom a default has been entered does not receive subsequent filings in the legal action. It is always best to err on the side of caution and file an answer, even if it is a simple statement that you do not object to the foreclosure action but are preserving your right to receive notice and make a claim to the surplus funds. This way, you will be notified when the foreclosure sale is scheduled, and can monitor the case to determine whether there are excess proceeds.

Posted in Banking and Finance, Creditor's Rights, Foreclosure | Leave a comment

Know Your Loan Modifications: A Caution Under the Florida Consumer Collection Practices Act

A recent decision by the Florida Second District Court of Appeal spotlights the importance of a lender keeping its loan system up-to-date as to loan modifications and forbearance agreements so that erroneous default notices are not automatically generated and sent to consumers. In Gann v. BAC Home Loans Services, LP, the Plaintiff alleged a cause of action against BAC under the Florida Consumer Collection Practices Act (FCCPA), claiming that BAC violated the FCCPA because it sent her letters telling her that her loan was in default and that she needed to pay a reinstatement amount to avoid foreclosure. The Plaintiff further alleged that she and BAC had entered into a loan modification and that she was current with all her payments under the loan modification. If what the Plaintiff alleged was true, then BAC could be found in violation of the FCCPA for attempting to enforce a debt when BAC knew or should have known that the debt was not legitimate because there was no default under the loan modification. For a complete copy of the Court’s decision, click here.

As a reminder to lenders and loan servicers in Florida, the FCCPA is broader in scope than the Federal Fair Debt Collection Practices Act. Unlike the Federal version, which only applies to debt collectors who aren’t the owner or servicer of the debt, the FCCPA applies to creditors who are collecting their own debts. Damages for violations of the FCCPA include actual damages, statutory damages not to exceed $1,000 per violation, punitive damages in particularly eggregious cases, and attorneys fees if the person claiming the violation prevails. Generally it is the exposure to a large attorneys fees award that creates the most litigation risk for a lender.

 

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Mortgage Modification Mediation in Bankruptcy

The Bankruptcy Court for the Middle District of Florida has recently adopted a uniform Mortgage Modification Mediation (MMM) process that applies to all debtors in all chapters of bankruptcy, for any type of real property. The new MMM is effective August 15, 2014. The new MMM broadens the scope of loans that can be compelled to mediation, as the prior mediation program in the Middle District was limited to homestead properties. Now investment properties will be subject to MMM. The MMM is also not limited to consumer/individual bankruptcy filers and could apply to entities that file bankruptcy.

As with the prior mediation program, the bankruptcy debtor has option of requesting MMM through the filing of a motion, and if such a request is made, referral to mediation is preferred by the Courts. If the motion requesting MMM is timely filed, the Court will grant the request and enter an order directing MMM. Lenders must show “good cause” for the court to reconsider the request for MMM.

What this means is that lenders who have claims that are secured by any type of real property should be prepared to mediate if their debtor files bankruptcy. As with any other civil mediation, the MMM does not require the lender to accept any particular loan modification during mediation, though it does require the lender to consider the debtor’s financial disclosures and what loss mitigation options might be available based on those financial disclosures. The benefit to the MMM in bankruptcy court is that the debtor is required to provide financial information in advance of the mediation or run the risk of the mediation being cancelled.

For a complete copy of the MMM Procedures, click here.

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Dismissal of a Foreclosure Lawsuit and Attorneys Fees Awards for Defendants

Did you know that if a lender voluntarily dismisses a foreclosure lawsuit, it could open up the lender to a claim for attorneys fees by the defendant borrower? Although this is not necessarily a new legal principle, the Florida Second District Court of Appeal recently decided a case regarding such a situation, and a little reminder never hurt anyone. The reason the lender may be subject to an attorneys fees claim from the defendant is that a voluntary dismissal dismisses the case in favor of the defendant, thereby rendering the defendant the “prevailing party” for the purposes of an award of attorneys fees. Often times this may not be a serious risk or large exposure, if the case is dismissed prior to heavily contested litigation or before the defendant files any pleading in the case. But in a situation where the defendant files pleadings in opposition, such as a motion to dismiss, affirmative defenses, or a counterclaim, the lender would be well served by seeking a joint stipulation on the voluntary dismissal, which would contain a provision in which the defendant agrees that he or she will pay for his or her own attorneys fees.

For  the full opinion from the Second District Court of Appeal, click here.

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A Caution Regarding Association Assessments in Foreclosure Judgments

Today I have a post that comes from my review of recent opinions published by the Florida Courts on lender issues. Often times in a foreclosure action there is an association (homeowners, condominium, or otherwise) named as a defendant because of past due assessments or the association’s other claim of interest to the property. If there are unpaid assessments owed to the association, and the lender takes title to the property through a foreclosure sale, the lender is liable for the unpaid assessments that came due prior to its acquisition of title. However, in such a situation, the lender’s liability for unpaid assessments is capped at the lessor of the unpaid assessments for the 12 months immediately preceeding the acquisition of title or 1% of the original mortgage debt. (Fla. Stat. 718.116(1)(b); 720.3085(2)(c)). Sometimes, after the lender takes title, a dispute arises between the lender and the association over the amount of the assessments. If the lender has to take the dispute to court to get a resolution, the most cost effective thing to do is to file a motion in the existing foreclosure action. This way, the lender will avoid the filing fees for filing a new lawsuit against the association and the attorneys fees and costs for preparing a new and independent lawsuit against the association.

In a case recently heard on appeal by Florida’s Third District Court of Appeal, a lender tried to do precisely what I recommend above, and filed a motion in the existing foreclosure action to determine the amount of assessements owed to an association. The trial court denied the lender’s motion, and the appellate court affirmed. So why did the courts deny the lender’s request for relief? In this case, the lender’s final judgment of foreclosure did not expressly reserve the court’s jurisdiction to determine the amount of unpaid assessments owed to the association. The courts held that neither the finding in the final judgment of foreclosure as to superiority of the lender’s lien, nor the general statement in the final judgment that allowed the court to enter further orders that are proper, was sufficient to give the court jurisdiction to decide the issue of amount of unpaid assessments.

So what’s the upshot? As a lender, make sure you final judgment of foreclosure includes a specific and express reservation of the court’s jurisdiction to determine the amount of any assessments owed to an association, or else the lender could find itself in the unfortunate position of having to file a separate lawsuit (and incur the expense of filing that separate lawsuit) to litigate the amount of assessments with the association.

To see the full opinion of the Third District Court of Appeal, follow this link: http://www.3dca.flcourts.org/Opinions/3D13-1672.pdf   

Posted in Foreclosure, Homeowner/Condominium Associations | Leave a comment

Foreclosing a Mortgage for Failure to Pay Non-Escrowed Real Estate Taxes or Insurance

With the implementation of the new servicing requirements under RESPA and TILA, stemming from the Dodd-Frank Act, came a federal regulation governing when a servicer can first initiate foreclosure proceedings. Under § 1024.41(f), a servicer cannot file its foreclosure action unless the loan is over 120 days past due, the loan is in default for violation of its due on sale clause, or a lienholder is joining the action of a subordinate lienholder. The regulation makes no mention of defaults for other non-monetary obligations, such as failure to pay non-escrowed real estate taxes or non-escrowed property insurance.(1)  There is also no guidance in official commentary from the CFPB on this issue.  So, what is a servicer to do when a consumer continues to pay its regular principal and interest payments on time, but has not paid his or her real estate taxes or property insurance?

With respect to property insurance, many servicers will force-place insurance to make sure the collateral is protected. Similarly, servicers may have to advance funds to pay real estate taxes to avoid losing the property at a tax deed sale.  But can the servicer foreclosure on the property for these defaults if the consumer is paying current his or her regular principal and interest loan payments?

On the one hand, §1024.41(f) is an exclusive and exhaustive list, suggesting that a servicer cannot foreclosure for any reason other than what is set forth in the regulation. But, practically speaking, that doesn’t seem to make sense because it leaves a servicer without a remedy against a defaulted borrower. (Though I recognize that the word “practical” isn’t one we would generally use to describe banking regulations). The solution, it seems, would be for the servicer to accelerate the loan based upon the loan based upon the consumer’s failure to pay the insurance or taxes, and send notice of that acceleration to the consumer.  Then, the servicer can file foreclose if the consumer does not pay the accelerated balance of the loan within 120 days.

Although no official commentary has been written on this point, the CFPB has verbally confirmed that this is a permissible course of action for the servicer during a webinar question and answer session with the American Servicer’s Association in April, 2014. The CFPB stated that there are a couple operational points if the servicer takes this approach.  First, once the acceleration notice is sent to the consumer, the notice should include a notice to the consumer that any subsequent payments that are sent to the servicer will be applied as partial payment toward the fully accelerated balance.  Second, when payments are received by the servicer, even if the payment is in the principle and interest amount, that amount should not be applied to principle and interest.  Instead, it is applied as a partial payment to the fully accelerated balance in the order required under the loan documents.

A few other points of consideration would be that if the loan documents require the servicer to give the consumer an opportunity to cure a default for failure to pay insurance or taxes, the servicer should note that it will need to send a cure notice prior to the acceleration notice. Additionally, if the loan documents with the consumer allow the consumer to reinstate the loan, both the cure notice and the subsequent acceleration notice should notify the consumer of the amount that must be paid to cover the insurance or taxes in order to reinstate the loan.

On a final note, it should be noted that if the servicer has not accelerated the loan, and the consumer continues to send just the regular monthly principal and interest payment to the servicer, the servicer cannot unilaterally choose to apply the payments received to insurance or tax advances. The remedy in this situation, it seems, is limited to acceleration and demand.

Have any of you experienced this problem? What have you done to address the situation with your customer? Short of having to accelerate the loan and foreclose, have you been successful in getting the loan back on track with insurance and taxes?

(1) This Post does not generally apply to real estate taxes or property insurance that is paid into escrow as a part of a regular periodic payment on the loan. In those situations, the failure to pay the escrow amount would create a default on a regular periodic payment, which would lead to the loan being “past due”.

Posted in Banking and Finance, Consumer Finance, Creditor's Rights, Loan Servicing, Property Insurance, Real Estate Taxes | Leave a comment

Waivers of Consumer Claims: Balancing Traditional Compliance Concerns With Special Assets Recovery

Issues of regulatory compliance and special assets/loan recovery have always overlapped. For example, defenses arising from TILA disclosures (or lack thereof) and rights of rescission have been commonplace in foreclosure proceedings during the past several years. However, with the passing of the Dodd-Frank Act and its implementing regulation, there is more overlap than ever. There are now servicing regulations which govern how a servicer must interact with a consumer in default.

Thus, when it comes to consumer regulations, there are two different compliance concerns: (1) meeting the expectations of the servicer’s respective regulatory agencies (“traditional compliance”); and (2) being prepared for litigation with the consumer (“consumer litigation”). If a consumer feels that he or she has been wronged by the servicer’s failure to comply with a particular regulation, that individual consumer may be able to bring a lawsuit against the servicer and recover damages. The consumer could also raise the issue as a defense in a foreclosure action or other action to recover on the loan. Therefore, compliance is not only significant for a servicer from a traditional compliance perspective, but also from a loan recovery perspective.

How a servicer complies with consumer regulation from the traditional compliance perspective and from the consumer litigation perspective should, in theory, be the same. Judges in consumer litigation apply the statutes, the implementing regulations, and cases interpreting those laws. Judges are required to consider any official commentary or interpretation by the regulatory agencies when applying such law. Thus, a servicer should not experience a different outcome in its regulatory exam than it does in a court of law. Unfortunately, there are some inconsistencies forming in this area.

One of the areas of inconsistency relates to the practice of requiring a consumer to waive all defenses and claims against a servicer as a part of a loan workout. On the one hand, in the consumer litigation context, it is a longstanding principle of law that such a waiver is fully enforceable. As recently as October, 2013, a federal court applied this longstanding law to find that a servicer was not liable for a violation of Regulation B, because the consumer had signed a waiver of all of her claims against the servicer.[1] On the other hand, in the CFPB’s Winter 2013 Highlights[2], the CFPB noted that it found the practice of requiring blanket waivers in all loan modifications to be unfair and deceptive. The CFPB took issue with the way waivers were presented to all consumers as a part of a loan workout in a “take or leave it fashion.” Meaning, the consumers’ individual circumstances were not evaluated when the servicer required the waiver, and the waivers were not negotiated as a part of a bona fide dispute. The CFPB’s recommendation was for the servicer to immediately cease use of such blanket waivers and to notify all customers who may have signed the waiver that it was not enforceable. This could lead to significant consequences with the consumer. Moreover, the fact that the CFPB has issued a statement that it finds blanket waivers of liability to be a potential unfair and deceptive practice creates exposure to servicers as a UDAAP risk.

So the question then becomes, should a servicer require a waiver of defenses when doing a loan workout in special assets or not? The practical considerations remain the same from the standpoint of special assets collection. Without a waiver, if there are legitimate existing claims (or even if there are not legitimate ones), lengthy and expensive litigation could ensue if the consumer defaults under the terms of the workout agreement. On the other hand, the exposure to a servicer for a UDAAP violation is great. So how do you reconcile the two competing concerns? The likely reconciliation comes from the CFPB’s description of the “take it or leave” waiver. The problem that the CFPB seemingly identified was that the consumers were not evaluated on individual circumstances. The consumers may not have even been aware of potential claims that they had against the servicer. The CFPB felt that it was unfair and deceptive to require a boilerplate waiver, likely found among the many other boilerplate terms in a modification agreement, without discussing the reason and need for the waiver with the consumer. It could be reasonable to interpret the CFPB’s statement that it would allow a waiver in certain circumstances where a bona fide dispute is being negotiated with the consumer. For instance, if there is ongoing litigation and a consumer has raised a Regulation B, TILA, or other regulatory defense, it might be reasonable for the servicer to negotiate with the consumer a loan modification subject to a waiver of those defenses.

The question remains as to whether blanket waivers should be included as boilerplate in all workout documents. In the consumer loan context, servicers should be aware of the CFPB guidance and evaluate internally the risk of UDAAP concerns with the risk of not obtaining a waiver from the consumer.

Footnotes:

[1] Ballard v. Bank of America, N.A., 734 F.3d 308 (4th Cir. 2013) (“Bank of America well may have violated ECOA by requiring Mrs. Ballard to sign as an unlimited guarantor without first determining that her husband was not creditworthy. We need not, however, definitively resolve that question because Mrs. Ballard’s claim fails for another reason—she waived it.”)

[2] http://www.consumerfinance.gov/reports/supervisory-highlights-winter-2013/

Posted in Banking and Finance, Consumer Finance, UDAAP, Waivers of Liability | Leave a comment