Compliance Blog

Written by Steve Van Beek

20 Notices.  If you are looking for an example of increased regulatory burden, you need not look any further than the CFPB's mortgage servicing proposed rules. The proposals, taken together, will require at least 20 notices by credit unions.  Below I've included a listing of these proposed notices along with the proposed section number.  Oh, and a majority of these notices have their own unique timing requirements.  

Of course, this is an unofficial number but it does give you an idea of the CFPB's mortgage proposal changes.  

Regulation Z

• Rate Adjustment Notice - 1026.20(c)
• Initial Rate Adjustment Notice - 1026.20(d)
• Periodic Statement Requirement - 1026.41

Regulation X

• Written Acknowledgment of Member's Notice of Error - 1024.35(d)
• Response to Member's Notice of Error - 1024.35(e)
• Notification to Member if Error is Excludable from Error Resolution Process - 1024.35(g)(2)
• Written Acknowledgment of Member's Request for Information - 1024.36(c)
• Response to Member's Request for Information - 1024.36(d)
• Notification to Member if Information Request is Unreasonable - 1024.36(f)(2)
• First Notice for Force-Placed Insurance - 1024.37(c)(2)
• Version 1 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(i) 
• Version 2 - Reminder Notice for Force-Placed Insurance - 1024.37(d)(2)(ii) 
• Renewal Notices for Force-Placed Insurance - 1024.37(e) 
• Provision of Member's Servicing File Upon Request - 1024.38(c)(2)
• Oral Notice to Delinquent Borrowers - 1024.39(a)
• Written Notice to Delinquent Borrowers - 1024.39(b) 
• Notice to Member of Incomplete Loss Mitigation Application - 1024.41(b)(2)(ii)
• Notice of the Decision on a Member's Loss Mitigation Application - 1024.41(c)(2)
• Notice of the Decision on a Member's Appeal of the Initial Loss Mitigation Application - 1024.41(h)(4)
• Notification to Other Servicers Holding Liens - 1024.41(j)

Wow - that is quite a few proposed notices for financial institutions who did not cause the financial crisis and who did not use servicing practices that lead to the National Mortgage Settlement.  

What About Small Servicers?  The CFPB's own analysis in their discussion of the proposed periodic statement exemption indicates that small servicers have a completely different business model:

"Where small servicers already have incentives to provide high levels of customer contact and information, the Bureau believes that the circumstances may warrant exempting those servicers from complying with the periodic statement requirement. In particular, small servicers that make loans in their local communities and then either hold their loans in portfolio or retain the servicing rights have incentives to maintain “high-touch” customer service models. Affirmative communications with consumers help such servicers (and their affiliates) to ensure loan performance, protect their reputations in their communities, and market other consumer financial products and services.  Because those servicers have a long-term relationship with the borrowers, their incentives with regard to charging fees and other servicing practices may be more aligned with borrower interests. These motivations to ensure a good relationship incentivize good customer service, including making information about upcoming payments, fees charged and payment history, and information for distressed borrowers easily available to consumers by other means." (underlining added, italics in original).

It would seem reasonable that the same rationale would apply to the other new notices proposed by the CFPB to correct the errors of large servicers.  

Comments Needed.  If you are wondering what action your credit union can take, consider commenting on the proposed rules and letting the CFPB know how difficult it will be to comply with 20 new notice requirements.  NAFCU members can view our Regulatory Alert here (12-EA-24), comments are due to NAFCU by September 18, 2012.  If you comment directly to the CFPB, comments are due October 9, 2012.