The Consumer Financial Protection Bureau on Monday filed an amicus brief in a 9th U.S. Circuit Court of Appeals lawsuit that broadly interprets the responsibility servicers have in answering borrower questions.
The CFPB argued that borrowers in the case of McCoy v. Wells Fargo had a right to answers that the bank had declined to provide about their loans, such as the transactional history, the physical location of the original note, and the identity and address of the owner or assignee. McCoy ceased making payments in April 2007, when many borrowers had loosely underwritten mortgages and went into foreclosure due to the housing crash.
Wells had initially declined to provide the information to plaintiff Donald McCoy III because the topics involved “were the same or very closely related to…issues raised in pending litigation” related to foreclosure proceedings, according to court documents. The Wells attorney argued that the bank did not need to answer the questions because they were not servicing-related as defined in the original Real Estate Settlement Procedures Act, but rather pertained to origination topics. Wells also argued that some requests were too broad to respond to in line with findings in similar court decisions. Among other things, servicing notes from a two-year period had been requested.
In contrast, the CFPB’s brief argued that 2013 amendments extended the RESPA information servicers must provide to topics “that do not specifically relate to ‘servicing.’” The bureau also used case history to support its position.
“Regulation X previously only expressly required loan servicers to respond to borrower requests for information relating specifically to servicers’ receipt of payments from borrowers and making of payments to the loan’s owners or other third parties, but the 2013 amendments gave mortgage borrowers the right under Regulation X to get a response from their servicer for almost any written question about their loans,” said Seth Frotman, general counsel at the CFPB in a blog published Monday. Frotman heads the legal team that submitted the brief.
Wells Fargo declined to immediately comment, and had not filed a response to the brief at deadline.
Amicus curiae or friend of the court briefs are filed by parties that are not involved in lawsuits but want to weigh in on them with a relevant opinion. While the brief technically pertains only to one class action case, it signals broader intent on the CFPB’s part, said Allen Denson, a partner at Stroock who previously served as a senior attorney at the Office of the Comptroller of the Currency.
“If you are a compliance-minded business, it's certainly an indication of where the bureau would like people to go,” Denson said. “It’s not just any friend of the court brief, it’s the CFPB weighing in on how it thinks the statute and the regulation should be interpreted.”
The CFPB’s latest interpretation raises the question of whether the bureau’s preferred outcome in the case could be used by plaintiffs suing servicers to obtain information in a manner that bypasses the courtroom discovery process, which could be a concern for mortgage companies, he noted.
However, the courts won’t necessarily agree with the CFPB’s interpretation in the case, so its ramifications for servicers could be limited.
“Courts are not required to accept that brief as authoritative,” Denson noted. “It's not the same thing as…rulemaking through notice and comment.”
Servicers have been watching the courts closely to see how broadly recent decisions have been defining their responsibilities under Reg X. While distress resulting from the pandemic has not been as widespread as it was during the 2007 housing crash, the CFPB and banking agencies signaled late last year that they have resumed close supervision of servicers as borrowers exit forbearance.
The key aspect of the suit to watch may be whether the court agrees with the CFPB, which believes it expanded the scope of qualified written requests as originally defined in RESPA to include requests for information added in 2013, said Richard Horn, co-managing partner at Garris Horn and a former CFPB official, in an email.
“This will be a very interesting legal question about the scope of the CFPB’s interpretive authority, which the CFPB used exclusively for many other provisions under the 2013 servicing rule too,” Horn said. “I think servicers should watch this case for the specific issue regarding RFIs, but the industry as a whole should watch this case to see how the circuit court handles the CFPB’s expansion of QWRs through its interpretive authority.”
