The Consumer Financial Protection Bureau chimed in on an appeal to the McCoy vs. Wells Fargo Bank case, arguing that a borrower should be able to get information about their loan from their loan servicer.
The CFPB filed its amicus brief on Monday, in a class action lawsuit before the Ninth Circuit Court of Appeals, alleging that Wells Fargo flouted its obligations to answer questions about two loans it serviced in 2020. The CFPB said the alleged oversight amounted to a failure to comply with the Real Estate Settlement Procedures Act (RESPA) and Regulation X, which the agency has jurisdiction over.
According to the lawsuit, in 2018 and 2019 Wells Fargo declined to provide information to either borrower because both accounts were in active foreclosure ligation.
Wells Fargo and the CFPB declined to comment.
In a blog posted on the CFPB’s website this week, Seth Frotman, general counsel for the bureau, argued that Wells Fargo’s reasoning for not responding to the plaintiffs was not justified.
“A pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X,” Frotman wrote. “When this case got to court, Wells Fargo didn’t even try to argue that it was entitled to ignore the borrowers’ requests because of the foreclosure proceedings.
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“Instead, Wells Fargo argued that even after the CFPB’s 2013 amendments, Regulation X didn’t require it to respond to the borrowers’ requests, which asked for things like transaction histories and the identities of their loans’ owners.”
Additionally, Frotman wrote that Wells Fargo has misinterpreted CFPB’s amendments to Regulation X, which requires servicers to provide information requested by borrowers. He said the depository is working under an outdated interpretation of the law.
“But that’s not what Regulation X says, that’s not what the CFPB intended, and that’s not what mortgage borrowers need in the modern mortgage market,” Frotman said.
RESPA, which was originally passed in 1975, and most recently amended in 2008, requires mortgage servicers to respond to borrowers seeking information about a mortgage loan within 10 business days. The CFPB amended the law’s Regulation X rule in 2013 broadening servicers’ obligations, requiring them to respond to requests for information even if it does not specifically relate to servicing.
The class action suit was dismissed in September 2021 based on a failure to state a claim, but a month later the plaintiffs appealed the decision, sending it to the Ninth Circuit.
In the class action lawsuit filed on Jan. 31, 2021, in the U.S. District Court of Oregon, the two plaintiffs alleged that Wells Fargo failed to comply with the RESPA and Regulation X by not providing information that plaintiffs sought.
The lawsuit also claimed that after Wells Fargo received qualified written requests in the form of a notice of error, it did not investigate the errors as required by Regulation X.
The two named plaintiffs, Donald McCoy and Maximiliano Olivera, said in the class action suit that they sent numerous request for information letters to Wells Fargo from 2018 to 2019 seeking information about their mortgage loans. The requests ranged from a payoff statement to contact information of the loan’s assignee, court papers show. McCoy and Olivera claim they did not receive the information that they asked for.
Eight months later, on Sept. 28, 2021, the court dismissed the case because the plaintiffs failed to state a claim for relief and that their inquiries were not related to servicing, but instead pertained to the validity and origination of their respective loans.
In December 2021, oral arguments were held to appeal the decision.
The case could impact the basis for determining the CFPB’s authority, as well as the interpretation of regulatory language, according to Richard Horn, partner at Garris Horn LLP.
Horn is currently involved in litigation against the CFPB which will test the agency’s interpretation of another statute, and its authority to police redlining. In the Wells Fargo case, Horn said that although the CFPB expanded the scope of qualified written statements in its 2013 servicing rule to include requests for information, the court disagreed.
“There is confusion about this requirement, in part because the regulatory text is not the clearest about whether requests for information include qualified written requests, or if qualified written requests include requests for information,” he said.
He noted that from the CFPB’s amicus brief it becomes clear that the bureau intended to expand the scope of qualified written requests.
The CFPB has been outspoken in the past year about heightened scrutiny of servicers. So far, however, there has been little public enforcement action.
Most recently, the CFPB warned that it is closely monitoring how servicers conduct themselves to help borrowers avoid foreclosures.
In January 2021, the bureau put the industry on alert, warning that it would direct its attention to how mortgage servicers were helping borrowers with COVID-19 forbearance. At the time, the bureau promised aggressive action. Soon after, it told servicers that “unprepared was unacceptable,” as the end of forbearance approached.
“Instead of a direct relationship between banks and their customers, the modern mortgage market is a complex web that often also involves securitized trusts and multiple servicers,” wrote Frotman in the blog post. “People need a banking system that provides high-quality customer service, and banks should focus on relationship banking by treating customers fairly and attending to their needs.”
