[Federal Register Volume 88, Number 83 (Monday, May 1, 2023)]
[Rules and Regulations]
[Pages 26475-26477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09171]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Rules and
Regulations
[[Page 26475]]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1006
Fair Debt Collection Practices Act (Regulation F); Time-Barred
Debt
AGENCY: Consumer Financial Protection Bureau.
ACTION: Advisory opinion.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing
this advisory opinion to affirm that the Fair Debt Collection Practices
Act (FDCPA) and its implementing Regulation F prohibit a debt
collector, as that term is defined in the statute and regulation, from
suing or threatening to sue to collect a time-barred debt. Accordingly,
an FDCPA debt collector who brings or threatens to bring a State court
foreclosure action to collect a time-barred mortgage debt may violate
the FDCPA and Regulation F.
DATES: This advisory opinion is effective on May 1, 2023.
FOR FURTHER INFORMATION CONTACT: Seth Caffrey, Courtney Jean, or
Kristin McPartland, Senior Counsels, Office of Regulations at (202)
435-7700 or https://reginquiries.consumerfinance.gov/. If you require
this document in an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION: The CFPB is issuing this advisory opinion
through the procedures for its Advisory Opinions Policy.\1\ Refer to
those procedures for more information.
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\1\ 85 FR 77987 (Dec. 3, 2020).
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I. Advisory Opinion
A. Background
Leading up to the 2008 financial crisis, many lenders originated
mortgages to consumers without considering their ability to repay the
loans.\2\ These practices, which harmed millions of people, included in
some cases originating products such as ``piggyback'' mortgages in
which high-interest second mortgages were issued simultaneously with
the origination of the first mortgage. One common piggyback mortgage
product, known as an 80/20 loan, involved a first lien loan for 80
percent of the value of the home and a second lien loan for the
remaining 20 percent of the valuation. Some consumers in these loans
found themselves unable to make full payments on their first and second
mortgages, and when housing prices began to decline in 2005,
refinancing became more difficult.\3\
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\2\ See generally 78 FR 79730, 79732-33 (Dec. 31, 2013).
\3\ Id. at 79733.
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When a borrower defaults on a second mortgage, the mortgage holder
may be able to initiate a foreclosure even if the borrower is current
on the first mortgage. However, the second mortgage holder only
receives proceeds from the foreclosure sale if there are any funds left
after paying off the first mortgage. As a result, many second mortgage
holders of piggyback loans, recognizing that a foreclosure would not
generate enough money to cover even the first mortgage, charged their
defaulted loans off as uncollectible and ceased communicating with the
borrowers. Some sold the loans to debt buyers, often for pennies on the
dollar. Such sales often occurred unbeknownst to borrowers, who
continued to receive no communications regarding the loans. Many
borrowers, having not received any notices or periodic statements for
years, concluded that their second mortgages had been modified along
with the first mortgage, discharged in bankruptcy, or forgiven.
In recent years, as home prices have increased and borrowers have
paid down their first mortgages, after years of silence, some borrowers
are hearing from companies that claim to own or have the right to
collect on their long-dormant second mortgages.\4\ These companies
often demand the outstanding balance on the second mortgage, plus fees
and interest, and threaten to foreclose if the borrower does not or
cannot pay. The CFPB is concerned about homeowners who survived the
2008 financial crisis but who are now facing foreclosure threats and
other collection activity because of long-dormant second mortgages.
These borrowers are often told that they face a choice between entering
into onerous payment plans or losing their homes and the equity they
have diligently built since the financial crisis.
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\4\ See generally Michael Hill, ``Zombie Debt'': Homeowners face
foreclosure on old mortgages, Associated Press (Nov. 16, 2022),
https://apnews.com/article/business-mortgages-44b1ffad08a80b96a8630e091d1e96f2.
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Because of the amount of time that has lapsed on these long-dormant
loans, some have likely become time barred under State law. Time-barred
debts are debts for which the applicable statute of limitations has
expired.\5\ Statutes of limitation are, typically, State laws that
provide time limits for bringing suit on legal claims.\6\ In most
States the expiration of the applicable statute of limitations, if
raised by the consumer as an affirmative defense, precludes the debt
collector from recovering on the debt using judicial processes.\7\ In
many jurisdictions, State court (i.e., judicial) foreclosure actions
are subject to a statute of limitations.
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\5\ See 86 FR 5766, 5776-77 (Jan. 19, 2021); 12 CFR
1006.26(a)(2).
\6\ See 86 FR at 5775-76; 12 CFR 1006.26(a)(1).
\7\ See 86 FR at 5777.
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The CFPB understands that some debt collectors collecting on long-
dormant second mortgages may have filed or have threatened to file
judicial foreclosure actions even though the underlying debt is time
barred. The CFPB is issuing this advisory opinion to affirm that: (1)
the FDCPA and its implementing Regulation F prohibit a debt collector,
as that term is defined in the statute and regulation, from suing or
threatening to sue to collect a time-barred debt; and (2) this
prohibition applies even if the debt collector neither knows nor should
know that the debt is time barred. Accordingly, an FDCPA debt collector
who brings or threatens to bring a State court foreclosure action to
collect a time-barred mortgage debt may violate the FDCPA and
Regulation F.
B. Coverage
This advisory opinion applies to debt collectors as defined in
section 803(6) of the FDCPA and implemented in Regulation F, 12 CFR
1006.2(i).
[[Page 26476]]
C. Legal Analysis
The FDCPA \8\ and its implementing Regulation F \9\ govern the
conduct of ``debt collectors'' when they collect ``debt.'' The statute
and regulation generally define a debt collector as ``any person who
uses any instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any debts,
or who regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due another.''
\10\ Many individuals and entities that seek to collect defaulted
mortgage loans, and many of the attorneys that bring foreclosure
actions on their behalf, are FDCPA debt collectors.
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\8\ 15 U.S.C. 1692-1692p.
\9\ 12 CFR part 1006.
\10\ 15 U.S.C. 1692a(6); 12 CFR 1006.2(i). The statute and
regulation also provide that, for purposes of section 808(6) and 12
CFR 1006.22(e), the term debt collector also includes any person who
uses any instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the enforcement of
security interests. Id.
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The FDCPA and Regulation F define ``debt'' as ``any obligation or
alleged obligation of a consumer to pay money arising out of a
transaction in which the money, property, insurance, or services which
are the subject of the transaction are primarily for personal, family,
or household purposes, whether or not such obligation has been reduced
to judgment.'' \11\ A consumer's payment obligation arising from a
mortgage transaction primarily for personal, family, or household
purposes, such as the purchase of the consumer's residence, falls
within the plain language of this definition.\12\ It follows that State
court foreclosure proceedings often constitute the collection of
``debt'' under the FDCPA,\13\ and debt collectors who engage in such
debt collection activity are subject to the requirements and
prohibitions of the FDCPA and Regulation F.
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\11\ 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
\12\ See, e.g., Cohen v. Rosicki, Rosicki & Assocs., PC, 897
F.3d 75, 83 (2d Cir. 2018).
\13\ Id. at 83-84.
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Regulation F prohibits a debt collector from suing or threatening
to sue to collect a time-barred debt.\14\ As the CFPB explained in
finalizing this prohibition, ``a debt collector who sues or threatens
to sue a consumer to collect a time-barred debt explicitly or
implicitly misrepresents to the consumer that the debt is legally
enforceable, and that misrepresentation is material to consumers
because it may affect their conduct with regard to the collection of
that debt, including whether to pay it.'' \15\ Regulation F's
prohibition on suits and threats of suit on time-barred debt is subject
to a strict liability standard.\16\ That is, a debt collector who sues
or threatens to sue to collect a time-barred debt violates the
prohibition ``even if the debt collector neither knew nor should have
known that a debt was time barred.'' \17\ Accordingly, a debt collector
who brings or threatens to bring a State court foreclosure action with
respect to a time-barred mortgage debt may violate the FDCPA and
Regulation F. This is true even if the debt collector neither knew nor
should have known that the debt was time barred.
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\14\ 12 CFR 1006.26(b).
\15\ 86 FR 5776, 5778 (Jan. 19, 2021).
\16\ See id. at 5777, 5781.
\17\ Id. at 5777.
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The CFPB also notes that a broad range of non-foreclosure debt
collection-related activity, such as communicating with consumers about
defaulted mortgages, can be covered by the FDCPA. FDCPA debt collectors
undertaking such activity are subject to the other requirements and
prohibitions of the statute and Regulation F when collecting debt \18\
whether or not that debt is time-barred. These include, for example,
the prohibition on debt collectors: falsely representing the character,
amount, or legal status of any debt; \19\ threatening to take any
action that cannot legally be taken or that is not intended to be
taken; \20\ and selling, transferring for consideration, or placing for
collection a debt that the debt collector knows or should know has been
paid or settled or discharged in bankruptcy.\21\ They also include, for
example, the requirement that debt collectors: identify themselves as a
debt collector in all communications with the consumer (except formal
pleadings in connection with a legal action); \22\ provide the consumer
with validation information in certain circumstances; \23\ and respond
to consumer disputes adequately before continuing to collect.\24\
Finally, even if an FDCPA debt collector engages only in actions
necessary to undertake a nonjudicial foreclosure action, the debt
collector is still subject to FDCPA section 808(6) \25\ and Regulation
F, 12 CFR 1006.22(e),\26\ which generally prohibit taking or
threatening to take any nonjudicial action to effect dispossession or
disablement of property if the debt collector has no present right or
intention to do so.\27\
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\18\ See 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
\19\ 15 U.S.C. 1692e(2)(a); 12 CFR 1006.18(b)(2).
\20\ 15 U.S.C. 1692e(5); 12 CFR 1006.18(c)(1); 15 U.S.C.
1692f(6); 12 CFR 1006.22(e).
\21\ 12 CFR 1006.30(b).
\22\ 15 U.S.C. 1692e(11); 12 CFR 1006.18(e).
\23\ 15 U.S.C. 1692g(a); 12 CFR 1006.34.
\24\ 15 U.S.C. 1692g(b); 12 CFR 1006.38(d); 85 FR 76734, 76845-
48 (Nov. 30, 2020).
\25\ 15 U.S.C. 1692f(6).
\26\ See 15 U.S.C. 1692a(6); 12 CFR 1006.2(i)(1).
\27\ See Obduskey v. McCarthy & Holthus LLP, 139 S.Ct. 1029
(2019) (holding that a business engaged in no more than nonjudicial
foreclosure proceedings is not a debt collector under FDCPA section
803(6), except for the limited purpose of FDCPA section 808(6)).
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Although not the focus of this advisory opinion, the CFPB also
notes that entities selling or collecting on these second mortgages who
are mortgage servicers may also be subject to certain requirements
under the Real Estate Settlement Procedures Act,\28\ the Truth in
Lending Act,\29\ and the CFPB's mortgage servicing regulations.\30\ For
example, unless an exemption applies, the CFPB's mortgage servicing
regulations require servicers to provide periodic statements to
consumers.\31\
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\28\ 12 U.S.C. 2601 et seq.
\29\ 15 U.S.C. 1601 et seq.
\30\ See, e.g., 12 CFR 1024.33(b) (requiring a transferee and
transferor servicer to provide a timely notice of transfer of
servicing to the affected borrower), 12 CFR 1024.39 (requiring
servicers to make early intervention contacts with delinquent
borrowers), 12 CFR 1024.41 (requiring servicers to follow certain
loss mitigation procedural requirements, including certain
foreclosure-related protections). Note that small servicers, as
defined in 12 CFR 1026.41(e)(4), are exempt from certain of these
requirements. See 12 CFR 1024.30(b).
\31\ See 12 CFR 1026.41(a); see also, e.g., 12 CFR 1026.41(e)(4)
(exempting small servicers from this requirement) and 12 CFR
1026.41(e)(6) (exempting servicers from periodic statement
requirements for certain charged-off loans but only if, among other
conditions, the servicer sends a specific notice to the consumer and
does not charge additional fees or interest on the account).
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II. Regulatory Matters
This advisory opinion is issued under the CFPB's authority to
interpret the FDCPA, including under section 1022(b)(1) of the Consumer
Financial Protection Act of 2010,\32\ which authorizes guidance as may
be necessary or appropriate to enable the CFPB to administer and carry
out the purposes and objectives of Federal consumer financial laws.\33\
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\32\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\33\ 12 U.S.C. 5512(b)(1).
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An advisory opinion is a type of interpretive rule. As an
interpretive rule, this advisory opinion is exempt from the notice-and-
comment rulemaking requirements of the Administrative Procedure
Act.\34\ Because no notice of proposed rulemaking is required, the
Regulatory Flexibility Act does not require an initial or final
regulatory flexibility analysis.\35\ The CFPB has also
[[Page 26477]]
determined that this advisory opinion does not impose any new or revise
any existing recordkeeping, reporting, or disclosure requirements on
covered entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.\36\
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\34\ 5 U.S.C. 553(b).
\35\ 5 U.S.C. 603(a), 604(a).
\36\ 44 U.S.C. 3501-3521.
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Pursuant to the Congressional Review Act,\37\ the CFPB will submit
a report containing this interpretive rule and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this interpretive rule as not a
``major rule'' as defined by 5 U.S.C. 804(2).
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\37\ 5 U.S.C. 801 et seq.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-09171 Filed 4-28-23; 8:45 am]
BILLING CODE 4810-AM-P