Alston & Bird Consumer Finance Blog

Fair Credit Reporting Act (FCRA)

CFPB Publishes Fall 2022 Supervisory Highlights

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A&B ABstract:

On November 16, 2022, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released its Fall 2022 Supervisory Highlights (Issue 28) (the “Supervisory Highlights”), which, among other things, announces the creation of a Repeat Offender Unit and highlights supervisory observations from examinations conducted by the Bureau in the first half of 2022.  Below we discuss some of the key takeaways from the Supervisory Highlights.

The Supervisory Highlights

CFPB’s New Repeat Offender Unit

The CFPB announced the creation a Repeat Offender Unit (“ROU”) to focus its supervision on repeat offenders with the intent to recommend specific corrective actions to stop recidivist behavior. The ROU intends to engage in closer scrutiny of repeat offenders’ compliance with certain orders, along with the following activities:

  • Reviewing and monitoring the activities of repeat offenders;
  • Identifying the root cause of recurring violations;
  • Pursuing and recommending solutions and remedies that hold entities accountable for failing to consistently comply with federal consumer financial law; and
  • Designing a model for review of orders and monitoring that reduces the occurrences of repeat offenders.

The creation of the ROU is not surprising given Director Chopra’s prior statements signaling that the Bureau would focus its efforts on reining in corporate recidivism in the financial services industry. For example, in March 2022, Director Chopra delivered a speech to the University of Pennsylvania Law School, entitled Reining in Repeat Offenders, in which the Director noted that “[a]t the CFPB, we have plans to establish dedicated units in our supervision and enforcement divisions to enhance the detection of repeat offenses and corporate recidivists and to better hold them accountable…[and that] for serial offenders of federal law, the CFPB will be looking at remedies that are more structural in nature, with lower enforcement and monitoring costs…[including] seek[ing] ‘limits on the activities or functions’ of a firm for violations of laws, regulations, and orders.”

Supervisory Observations

The Supervisory Highlights identifies numerous supervisory observations pertaining to consumer reporting, debt collection, mortgage origination, mortgage servicing, and payday lending, among other topics. We discuss several of the Bureau’s notable observations below.

Consumer Reporting

With respect to credit reporting, the CFPB found violations of the Fair Credit Reporting Act and/or Regulation V involving the following issues:

  • Certain nationwide consumer reporting agencies failed to provide reports to the CFPB regarding consumer complaints received from consumers that the Bureau transmits to the credit reporting agency if those complaints are about “incomplete or inaccurate information” that a consumer “appears to have disputed” with the agency;
  • Some furnishers, including third-party debt collection furnishers, continue to: (1) inaccurately report information despite actual knowledge of errors; (2) fail to correct and update furnished information after determining such information is not complete or accurate; and (3) fail to establish and follow reasonable procedures to report the appropriate date of first delinquency on applicable accounts; and
  • Some furnishers also continue to fail to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information, such as by verifying random samples of furnished information, and fail to conduct reasonable investigations of direct disputes by neglecting to review relevant information and documentation.

Debt Collection

In recent examination activity, the CFPB has identified certain violations of the Fair Debt Collection Practices Act, such as:

  • Examiners found that certain larger participant debt collectors engaged in conduct intended to harass, oppress, or abuse consumers during telephone calls by continuing to engage in conversation even after consumers stated that the communication was causing them to feel annoyed, harassed, or abused.
  • Examiners found that debt collectors engaged in improper communication with third parties about a consumer’s debt when communicating with a person who had a similar or identical name to the consumer.

Mortgage Origination

Regarding mortgage origination, the CFPB found violations of Regulation Z and deceptive acts or practices prohibited by the Consumer Financial Protection Act (“CFPA”), such as:

  • Examiners found that certain entities improperly reduced loan origination compensation based on a term of a transaction by failing to use actual costs and fee amounts that were accurate and known to loan originators at the time initial disclosures were provided to consumers. Subsequently at closing, consumers were provided a lender credit when the actual costs of certain fees exceeded the applicable tolerance thresholds, which led entities to reduce loan originator compensation after loan consummation by the amount provided in order to cure the tolerance violation. Notably, the Bureau found that in each instance, the settlement service had been performed and the loan originator knew the actual costs of those services. The loan originators, however, entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. Thus, examiners found that the unforeseen increase exception permitted by Regulation Z did not apply to these situations.
  • Examiners also identified a waiver provision in a loan security agreement, which was used by certain entities in one state, that was determined to be deceptive in violation of the CFPA. The waiver provided that borrowers who signed the agreement waived their right to initiate or participate in a class action. The language was found to be misleading because a reasonable consumer could understand the provision to waive their right to bring a class action on any claim, including federal claims, in federal court, which is expressly prohibited by Regulation Z.

Mortgage Servicing

The Bureau indicated that its mortgage servicing examinations focused on servicers’ actions as consumers experienced financial distress related to COVID-19. Mortgage servicing findings by the CFPB included the following:

  • Servicers engaged in abusive acts or practices by charging sizable phone payments fees when consumers were unaware of the fees’ existence and, if disclosures were provided, providing general disclosures indicating that consumers “may” incur a fee did not sufficiently inform consumers of the material costs;
  • Servicers engaged in unfair acts or practices by:
    • charging consumers fees during a CARES Act forbearance plan, in violation of the CARES Act’s prohibition on the imposition of “fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract”; and
    • failing to timely honor requests for forbearance from consumers;
  • Servicers engaged in deceptive acts or practices by misrepresenting that certain payment amounts were sufficient for consumers to accept a deferral offer at the end of their forbearance period, when in fact, they were not due to updated escrow payments; and
  • Servicers violated Regulation X by failing to maintain policies and procedures reasonably designed to:
    • inform consumers of all available loss mitigation options, which resulted in some consumers not receiving information about options, such as deferral, when exiting forbearances; and
    • properly evaluate consumers for all available loss mitigation options, resulting in improper denial of deferral options.

Payday Lending

Regarding payday lending, examiners found that some lenders failed to maintain records of call recordings that were necessary to demonstrate compliance with certain conduct provisions in consent orders, e.g., prohibiting certain misrepresentations. The consent order provisions required creation and retention of all documents and records necessary to demonstrate full compliance with all provisions of the consent orders. The Bureau determined that the failure to maintain the call recordings violated the consent orders and federal consumer financial law.

Although this finding was specific to payday lenders, it may have broader implications for entities subject to an active CFPB consent order, as the provision relied upon by the Bureau in making its finding is routinely found in CFPB orders.

Takeaway

The compliance issues noted in the Supervisory Highlights emphasize the importance of maintaining a strong and continually updated compliance management system. Entities should review the Bureau’s supervisory observations against their current policies, procedures, and processes to ensure consistency with the Bureau’s compliance expectations, and to determine whether enhancements and/or proactive consumer remediation may be appropriate. Finally, entities subject to active CFPB consent orders should pay particular attention to whether their current policies, procedures, and processes are sufficient to ensure compliance with applicable law and the terms of the consent order, in order to mitigate against the risk of being deemed a repeat offender and potentially subject to increased penalties or broader structural remedies such as “seek[ing] ‘limits on the activities or functions’ of a firm for violations of laws, regulations, and orders.”

Alston & Bird Adds Consumer Finance Partner Aldys London in Washington, D.C.

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Alston & Bird has strengthened and expanded its capabilities for advising companies on state and federal consumer finance regulatory compliance issues with the addition of partner Aldys London in the firm’s Washington, D.C. office. Her clients include mortgage companies, consumer finance and FinTech companies, secondary market investors, real estate companies, home builders, insurance companies, banks, and other financial institutions and settlement service providers.

“It’s a pleasure to welcome Aldys, who brings deep experience and a sterling reputation for counseling consumer financial service entities as they navigate complex regulatory issues, including licensing, the intersection of state and federal regulatory compliance, and key approvals for transactions,” said Nanci Weissgold, Alston & Bird partner and co-chair of the firm’s Financial Services & Products Group. “With our shared emphasis on collaboration and excellent service, we are confident that she will successfully draw on our firm’s vast resources and expertise to benefit her clients.”

London provides advice on state licensing for mortgage lenders and related service providers, mortgage brokers, FinTech companies, lead generators, servicers, debt collectors, and investors. She is well versed in federal registration and licensing requirements imposed by the SAFE Act, as well as state laws and regulations concerning fees, disclosures, loan documentation, interest rates, privacy, advertising, data breach, and telemarketing.  Her practice also covers seeking and maintaining approvals from state and federal agencies and GSEs.  She is adept at federal laws governing real estate mortgage transactions, including preemption, privacy, fair lending and consumer protection.

In addition, London assists a variety of consumer financial services companies in obtaining regulatory approvals for complex acquisitions, mergers, and asset transfer transactions. She performs due diligence reviews for proposed acquisitions and IPOs, reviews and prepares policies and procedures, conducts regulatory compliance audits of financial institutions, and assists with structuring and developing compliance and training programs. She also assists clients with responses to regulatory audits and investigations by state and federal regulators.

“Clients rely on Aldys’ sound counsel because of her technical rigor and thorough understanding of the consumer finance market,” said Stephen Ornstein, Alston & Bird partner and co-leader of the firm’s Consumer Financial Services Team. “Her legal skills, combined with her excellent business sense and ability to develop strong relationships, make her a valuable asset to our firm and our clients.”

Alston & Bird’s Consumer Financial Services Team focuses on the regulation of consumer credit and real estate, with a broad emphasis on origination, servicing, and secondary mortgage market transactions. This team addresses the compliance challenges of major Wall Street financial institutions, federal- and state-chartered depository institutions, hedge funds, private equity funds, national mortgage lenders and servicers, mortgage insurers, due diligence companies, ancillary service providers, and others.

FTC Seeks Comment on Proposed Changes to FCRA Rules for Motor Vehicle Dealers

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A&B ABstract: The FTC is seeking public comment on proposed changes to five FCRA rules aimed at clarifying that these rules, as promulgated by the FTC, apply only to motor vehicle dealers, as equivalent rules promulgated by the CFPB will apply to other entities.

The Federal Trade Commission (“FTC”) has announced it is seeking public comment on proposed changes to existing rules implementing parts of the Fair Credit Reporting Act (“FCRA”). According to the FTC, the proposed changes would clarify that five FCRA rules promulgated by the FTC apply only to motor vehicle dealers.

This clarification is needed because after the Dodd-Frank Act transferred to the Consumer Financial Protection Bureau (“CFPB”) the FTC’s rulemaking authority under certain portions of the FCRA, the FTC rescinded several of its FCRA rules, which had been replaced by rules issued by the CFPB. However, the FTC retained rulemaking authority for other rules to the extent the rules apply to motor vehicle dealers (as defined in the Dodd-Frank Act) that are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.

In particular, the rule changes (each of which are addressed in separate Notices of Proposed Rule Making) would apply to the following five rules:

  1. The Address Discrepancy Rule (16 CFR Part 641), which outlines the obligations of users of consumer reports when they receive a notice of address discrepancy from a nationwide consumer reporting agency (“CRA”);
  2. The Affiliate Marketing Rule (16 CFR Part 680), which gives consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer;
  3. The Furnisher Rule (16 CFR Part 660), which requires entities that furnish information to CRAs to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers provided to a CRA;
  4. The Pre-screen Opt-Out Notice Rule (16 CFR Parts 642 and 698), which outlines requirements for those who use consumer report information to make unsolicited credit or insurance offers to consumers; and
  5. The Risk-Based Pricing Rule (16 CFR Part 640), which requires those who use information from a consumer report to offer less favorable terms to consumers to provide them with a notice about the use of such data.

Each of these FTC rules, as revised, will be limited in scope to apply only in relation to motor vehicle dealers, subject to certain exceptions, and those persons and entities originally covered by these rules who are not motor vehicle dealers remain subject to similar rulemakings promulgated by the CFPB. For example, with regard to the Pre-screen Opt-Out Notice Rule, the proposed amendment would replace the general term “person” with the term “motor vehicle dealers,” as defined, thus narrowing the scope of the rule to entities that are “predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.” The proposed rule amendments also reinstate certain model notices that are otherwise identical to the CFPB’s model notices applicable to certain entities that are not motor vehicle dealers.

Additionally, the FTC is seeking comment on the effectiveness of these five rules including the following considerations:

  • whether there is a continuing need for specific provisions of each rule;
  • the benefits each rule has provided to consumers;
  • what modifications, if any, should be made to each rule to benefit consumers and businesses; and
  • what modifications, if any, should be made to each rule to account for changes in relevant technology or economic conditions.

Takeaways: These proposed amendments to the relevant FCRA rules will serve to clarify the distinction between the rules applicable to motor vehicle dealers – promulgated by the FTC ­– and rules applicable to other entities, which have been issued by the CFPB.  Comments on these issues must be submitted to the FTC within 75 days from the date the notices of proposed rulemaking are published in the Federal Register. Instructions on how to file comments will be included in the notices published in the Federal Register.

CFPB Issues CARES Act Consumer Reporting FAQs

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A&B ABstract

On June 16th, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued a Compliance Aid titled “Consumer Reporting FAQs Related to the CARES Act and COVID-19 Pandemic.” This Compliance Aid clarifies the Bureau’s April 1, 2020 Statement that providing furnishers flexibility in handling disputes during the pandemic is not unlimited, putting consumer reporting agencies and furnishers on notice that the Bureau is enforcing the Fair Credit Reporting Act (“FCRA”), as amended by the CARES Act, and its implementing Regulation V.  The Compliance Aid also addresses questions on reporting CARES Act accommodations.

CFPB Focusing on Credit Reporting Accuracy and Dispute Handling

In its April 1, 2020 statement, the Bureau indicated that while furnishers are expected to comply with the CARES Act, the Bureau “does not intend to cite in examinations or take enforcement actions against those who furnish information to [CRAs] that accurately reflects the payment relief measures they are employing” and will not take enforcement or supervisory actions against furnishers and CRAs for failing to timely investigate consumer disputes. On June 16th the Bureau clarified that it is enforcing FCRA and that while it previously provided some flexibility the April 1st Statement “did not state that the Bureau would give furnishers or CRAs an unlimited time beyond the statutory deadlines to investigate disputes before the Bureau would take supervisory or enforcement action.”  The Bureau warns that it will take public enforcement action against companies or individuals that fail to comply with FCRA, but will consider the unique circumstances that entities face as a result of the COVID-19 pandemic and entities’ good faith efforts to timely investigate disputes.

CARES Act Amendment to FCRA

Section 4021 of the CARES Act amends FCRA by adding a new section providing a special instruction for reporting consumer credit information to credit reporting agencies during the COVID-19 pandemic.  Specifically, if a creditor or other furnisher offers an “accommodation” to a consumer affected by the COVID-19 pandemic in connection with a credit obligation or account, and the consumer satisfies the conditions of such accommodation, the furnisher must:

  • report the credit obligation or account as “current;” or
  • if the credit obligation or account was delinquent before the accommodation maintain the delinquent status during the effective period of the accommodation, or, if the consumer brings the account current during such period, then to report the account as current.

Stated differently by the CFPB, “during the accommodation, the furnisher cannot advance the delinquent status.” The CFPB provides the following example:

If the credit obligation or account was current before the accommodation, during the accommodation the furnisher must continue to report the credit obligation or account as current.

If the credit obligation or account was delinquent before the accommodation, during the accommodation the furnisher cannot advance the delinquent status. For example, if at the time of the accommodation the furnisher was reporting the consumer as 30 days past due, during the accommodation the furnisher may not report the account as 60 days past due. If during the accommodation the consumer brings the credit obligation or account current, the furnisher must report the credit obligation or account as current. This could occur, for example, if the accommodation itself brings the credit obligation or account current (such as a loan modification that resolves amounts past due so the borrower is no longer considered delinquent) or if the consumer makes past due payments that bring the credit obligation or account current.

An “accommodation,” as defined in this section, includes relief granted to impacted consumers such as an agreement to defer a payment, make a partial payment, grant forbearance, modify a loan or contract, or any other assistance or relief granted to a consumer affected by COVID-19. The reporting requirements do not apply to charged-off accounts.  This section applies from January 31, 2020 through the later of 120 days after: (i) enactment of this section, or (ii) termination of the national emergency declaration.

Questions on Reporting Accommodations under FCRA

There has been much confusion in how the CARES Act requirements translate into Metro 2 reporting requirements.  The CFPB offers the following guidance:

  • When furnishers are reporting an account to the CRAs, furnishers are expected to understand all the CRA’s data fields, to ensure that the information reported accurately reflects a consumer’s status as current or delinquent. Specifically, the Bureau provides “information a furnisher provides about an account’s payment status, scheduled monthly payment, and the amount past due may all need to be updated to accurately reflect that a consumer’s account is current consistent with the CARES Act.”
  • With respect to the use of special comment codes, the CFPB provides that “Furnishing a special comment code indicating that a consumer with an account is impacted by a disaster or that the consumer’s account is in forbearance does not provide consumer reporting agencies with this CARES Act-required information.  Left unaddressed is whether servicers are permitted to report special comment codes and other fields as required by CDIA/Metro2.
  • With respect to reporting the status of an account after an accommodation ends, the Bureau provides two instructions.  First, the Bureau states “[a]ssuming payments were not required or the consumer met any payment requirements of the accommodation, a furnisher cannot report a consumer that was reported as current pursuant to the CARES Act as delinquent based on the time period covered by the accommodation after the accommodation end.” Second, “a furnisher also cannot advance the delinquency of a consumer that was maintained pursuant to the CARES Act based on the time period covered by the accommodation after the accommodation ends.”

Questions remain on how to address a consumer’s delinquency after an accommodation ends if the delinquency hasn’t been resolved through loss mitigation or otherwise.  Also unaddressed is whether furnishers are permitted to report (i) a “special comment code” for natural disaster or forbearance or (ii) the “terms frequency” field (each of which can indicate an account is in forbearance or deferment, even while the “account status code” field is marked “current”), without violating the CARES Act requirement to report borrowers in forbearance as “current.”

Takeaway

CFPB has put furnishers on notice that the Bureau will begin to enforce the CARES Act credit reporting requirements.  Companies should pay attention to credit reporting complaint trends in the coming months.  Companies should also document good faith efforts to comply and respond to disputes as soon as possible.  Last, with the CFPB’s revised Responsible Business Conduct Policy, companies may consider getting in front of any issues while the environment is still favorable. Once forbearance ends and foreclosures resume, and given where we are in the election cycle, the situation could turn political this Fall and the enforcement posture could change.

Key Provisions of the CARES Act Affecting Mortgage Servicers

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A&B ABstract:

In response to COVID-19, on Friday March 28, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (the “CARES Act”).  This is a monumental $2 trillion stimulus package intended to provide financial relief to businesses, individuals and public institutions affected by the coronavirus.  The CARES Act addresses sweeping economic stabilization, small business lending and other direct financial support, tax provisions, healthcare, or other provisions. Below, we summarize the key provisions of the CARES Act affecting residential mortgage servicers.

Section 4021: Credit Protection During COVID-19

Section 4021 of the CARES Act amends the Fair Credit Reporting Act (15 U.S.C. 1681s-2(a)(1)) by adding a new section providing special instruction for reporting consumer credit information to credit reporting agencies during the COVID-19 pandemic.

Specifically, this section provides that if a creditor or other furnisher offers an “accommodation” to a consumer affected by the COVID-19 pandemic in connection with a credit obligation or account, and the consumer satisfies the conditions of such accommodation, the furnisher must report the credit obligation or account as “current.” An “accommodation” as defined in this section includes relief granted to impacted consumers such as an agreement to defer a payment, make a partial payment, grant forbearance, or modify a loan or contract.

In the event that the credit obligation or account was delinquent before the accommodation, the furnisher is required to maintain the delinquent status during the effective period of the accommodation, or, if the consumer brings the account current during such period, then to report the account as current. The reporting requirements set forth in Section 4021 do not apply to charged-off accounts.

This section applies from January 31, 2020 through the later of 120 days after: (i) enactment of this section, or (ii) termination of the national emergency declaration.[1]

A&B Takeaway: It is important to recognize that this provision applies to borrower’s payment history starting on January 31, 2020.  It also is important to recognize that state laws may also address the furnishing of credit information.  To the extent the state law is inconsistent, it is generally preempted pursuant to section 1681t(b)(1)(C) of FCRA, with specific carve outs for California and Massachusetts law that may require specific attention.

Section 4022:  Foreclosure Moratorium and Consumer Right to Request Forbearance

Section 4022 of the CARES Act grants forbearance rights and protection against foreclosure[2] to borrowers with a “federally backed mortgage loan”[3] including certain first or subordinate lien loans designed principally for the occupancy of from 1- to 4- families.  Loans secured by greater than 4 families are addressed separately in Section 4023 of the CARES Act.

During the covered period, a borrower with a federally backed mortgage loan who is experiencing a financial hardship that is due, directly or indirectly, to the COVID-19 emergency, may request forbearance on their loan, regardless of delinquency status, by submitting a request to their servicer and affirming that they are experiencing a financial hardship during the COVID-19 emergency.

Upon receiving a request for forbearance, a servicer must provide forbearance for up to 180 days, with no additional documentation required, other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency, and with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) charged to the borrower in connection therewith.  The forbearance period may be extended for up to an additional 180 days, at the request of the borrower, provided that the borrower’s request is made during the covered period.  The initial or extended period may also be shortened at the borrower’s request.

Additionally, except with respect to vacant or abandoned properties, a servicer of a federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days from March 18, 2020.

A&B Takeaway: While the law provides much needed relief for borrowers impacted by the COVID-19 pandemic, it leaves a number of questions unanswered.  First, the law does not appear to cover mortgage loans that are not federally insured or guaranteed or otherwise purchased or securitized by Fannie Mae or Freddie Mac.  Thus, it is unclear whether a servicer of a non-federally backed mortgage loan would need to comply.  Second, the law is silent as to whether borrower requests must be in writing, suggesting that oral requests for forbearance must be considered.[4] Third, while Section 4022 does not expressly define the “covered period,” Subsection (b)(1)(B) does provide that the borrower must attest to a financial hardship during the “COVID-19 emergency,” suggesting that borrower requests received outside of the “COVID-19 emergency” would not require the granting of forbearance.  Subsection (a)(1) defines “COVID-19 emergency” as the national emergency declared by President Trump on March 13, 2020 by Executive Order pursuant to the National Emergencies Act (“NEA”). Under the NEA, unless the President requests an extension, an emergency declaration terminates if: (1) the President issues a proclamation rescinding it, (2) Congress, having met no later than six months after date of issuance to consider a joint resolution of termination, passes such joint resolution, or (3) automatically one year following date of issuance.[5] Note that the national emergency declared by President Trump was made retroactive to March 1, 2020.  Accordingly, there appears to be an implied covered period associated with this section, namely, March 1, 2020 until the earlier of February 28, 2021 or action by either the President or Congress to terminate the emergency declaration, unless the President requests an extension in accordance with the NEA.  Fourth, while Section 4022 provides that a servicer must grant forbearance for “up to 180 days,” it does not specify how a servicer is to determine the length of the forbearance period.  Thus, it is unclear whether a servicer must simply rely on a borrower’s attestation to determine the length of the initial forbearance (and any extensions thereto) or whether the servicer has some discretion to provide an initial (or extended) forbearance period of less than 180 days.  Finally, we note that the FHA, VA, USDA, Fannie Mae and Freddie Mac (collectively, the “Federal Agencies/GSEs”) all issued earlier guidance imposing a 60-day foreclosure moratoria in addition to guidance encouraging mortgage servicers to consider forbearance and other relief for borrowers affected by COVID-19.  While the CARES Act appears to provide similar foreclosure protections to those mandated by the Federal Agencies/GSEs, mortgage servicers should carefully review and compare the existing guidance to the protections under the CARES Act to determine their obligations with respect to impacted borrowers.

Section 4024: Temporary Moratorium on Eviction Filings

Section 4024 provides for a temporary moratorium on eviction filings for tenants of certain single- and multi-family properties.  Specifically, during the 120-day period following the enactment of the CARES Act (the “Moratorium Period”), the lessor of a “covered dwelling”[6] may not: (1) make, or cause to be made, any filing with the court of jurisdiction to initiate a legal action to recover possession of the covered dwelling from the tenant for nonpayment of rent or other fees or charges; or (2) charge fees, penalties, or other charges to the tenant related to such nonpayment of rent.

The lessor of a covered dwelling unit (1) may not require the tenant to vacate the covered dwelling unit until 30 days have passed from the date on which the lessor provides the tenant with a notice to vacate; and (2) may not issue a notice to vacate until after the expiration of the Moratorium Period.

A&B Takeaway:

Numerous states and localities also have issued temporary moratoriums on eviction files that provide greater protections to tenants.

[1] We note that this raises some unique questions regarding preemption of certain state consumer laws regarding consumer credit reporting.

[2] Note that, while outside the scope of this summary, Section 4023 of the CARES Act addresses foreclosure moratoria for certain multifamily loans.

[3] “Federally backed mortgage loan” means any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1- to 4- families that is (A) insured by the Federal Housing Administration under title II of the National Housing Act (12 U.S.C. 1707 et seq.); (B) insured under section 255 of the National Housing Act (12 U.S.C. 1715z-20); (C) guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. 1715z-13, 1715z-13b); (D) guaranteed or insured by the Department of Veterans Affairs; (E) guaranteed or insured by the Department of Agriculture; (F) made by the Department of Agriculture; or (G) purchased or securitized by the Federal Home Loan Mortgage Corporation (i.e., Freddie Mac) or the Federal National Mortgage Association (i.e., Fannie Mae).

[4] Note that Section 4023 of the CARES Act provides that “a multifamily borrower…may submit an oral or written request for forbearance,” further suggesting that oral requests must be considered under Section 4022.

[5] See 50 U.S.C. §§ 1622(a)-(b), (d).

[6] The term “covered dwelling” means a dwelling that (A) is occupied by a tenant (i) pursuant to a residential lease; or (ii) without a lease or with a lease terminable under State law; and (B) is on or in a covered property.  The term “dwelling” (A) has the meaning given the term in 42 U.S.C. 3602; and (B) includes houses and dwellings described in 42 U.S.C. 3603(b).  The term “covered property” means any property that (A) participates in (i) a covered housing program (as defined in 34 U.S.C. 12491(a)); or (ii) the rural housing voucher program under 42 U.S.C. 1490r; or (B) has a (i) Federally backed mortgage loan; or (ii) Federally backed multifamily mortgage loan.