CFPB Circumvents Rulemaking Process to Create A Bankruptcy Exemption in Servicing Rules

Without advance notice and with no opportunity to comment, the CFPB yesterday issued an interim final rule concerning the mortgage servicing regulations that take effect January 2014.  The new rule now exempts servicers from the periodic statement requirement when the borrower is a debtor in bankruptcy.  The CFPB states that the interim final rule “clarifies” its previous final rule on mortgage servicing, but the bankruptcy exemption is not a “clarification” of the previously issued rule.  Rather, the new exemption marks a 180-degree reversal from its previous position.  Previously, and rightly so, the CFPB found that the complexities of the bankruptcy scenario necessitated periodic statements for debtors.  The rule allowed servicers to make changes in statements to reflect accurate payment obligations of the debtor, but put an end to servicers’ practice of stopping monthly statements to borrowers who filed for bankruptcy.  Without statements, it is more difficult for homeowners to remain current on their mortgages post-petition. In developing the original rule the CFPB carefully considered input from various stakeholders and rejected a bankruptcy exemption for periodic statements.  Since the CFPB sidestepped the notice and comment procedure in its recent about face on periodic statements and bankruptcy, it can only be presumed that the CFPB relied upon less public input in reversing its previous “carefully considered” decision.  Shame on the CFPB!