Mortgage borrowers and bankruptcy
CFPB ﬁnal rule allows more latitude for periodic statements.
In early March, the Consumer Financial Protection Bureau (CFPB) issued a ﬁnal rule that permits mortgage servicers more latitude in providing periodic statements to borrowers either entering or exiting bankruptcy than initially provided by the agency’s 2016 mortgage servicing rule.
This ﬁnal rule is eﬀective April 19, 2018.
CFPB’s 2016 mortgage servicing rule amended certain requirements under Regulation Z and Regulation X that became eﬀective in October 2017.
The amendments also required that servicers send modiﬁed periodic statements or coupon books to certain borrowers in bankruptcy. These requirements were set to become eﬀective April 19, 2018.
The rule also covered the timing requirements for servicers to provide or cease to provide modiﬁed periodic statements to borrowers entering or exiting bankruptcy.
However, based on feedback, CFPB found that certain aspects of these requirements could create unintended challenges and be subject to different legal interpretations.
In October 2017, CFPB issued a proposed rule that would eliminate the unintended challenges and diﬀerent legal interpretations inherent in the 2016 mortgage servicing rule.
The proposed rule was ﬁnalized in early March. This ﬁnal rule provides a clear single-statement exemption for servicers that replaces the previous single-billing cycle exemption from the 2016 mortgage servicing rule.
Once a borrower enters bankruptcy, a servicer must transition from providing unmodiﬁed periodic statements or coupon books to providing periodic statements or coupon books with bankruptcy modiﬁcations.
Similarly, when a borrower exits bankruptcy, a servicer must generally transition back to providing unmodiﬁed periodic statements or coupon books.
The March ﬁnal rule provides that a servicer is exempt from the requirements of Reg Z Section 1026.41 with respect to a single billing cycle when the payment due date for that billing cycle is no more than 14 days after the date when:
- The borrower ﬁles bankruptcy.
- The borrower is discharged from bankruptcy.
- The servicer ceases to qualify for an exemption.
Modiﬁed periodic statements
Generally, for borrowers who are not in bankruptcy, the credit union must comply with the content and format requirements of Reg Z Section 1026.41 regarding periodic statements.
Certain modiﬁcations apply to periodic statements or coupon books for borrowers in bankruptcy or for borrowers who have received a dis-charge of personal liability for the loan through bankruptcy.
In a Chapter 7 or 11 bankruptcy, certain modiﬁcations are permitted to the disclosure of the amount due, whereas disclosure of a late payment fee, length of delinquency, notiﬁcation of possible risks if delinquency is not cured, and the ﬁrst notice or ﬁling for any foreclosure process information may all be omitted.
Additional bankruptcy-speciﬁc modiﬁcations to the delinquency information and other account information include:
- Account history.
- Amount due.
- Explanation of amount due.
- Transaction activity.
Reg Z Appendix H contains sample forms H-30(E) and H-30(F) that show modiﬁed periodic statements for borrowers in bankruptcy. Your credit union may use terminology other than that found on the sample periodic statements in Appendix H-30 as long as the new terminology is commonly understood.
In addition, you may modify a periodic statement or coupon book as necessary to facilitate compliance with the U.S. Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, court orders, and local rules, guidelines, and standing orders.
Reg Z provides that the bankruptcy exemption for providing modiﬁed periodic statements and coupon books ceases to apply if the borrower reaﬃrms his or her personal liability for a loan. A borrower who has reaﬃrmed personal liability for a loan is not considered a debtor in bankruptcy.
Therefore, upon a borrower’s reafﬁrmation of a loan, the servicer must provide a standard periodic statement or coupon book without the bankruptcy-speciﬁc modiﬁcations.
MICHAEL MCLAIN is CUNA’s senior federal compliance counsel. Contact him at 608-231-4185.