The new Consumer Financial Protection Bureau (CFPB) debt collection rule allows mortgage servicers to communicate with borrowers on social media, but the compliance risk may outweigh the potential reward.
The CFPB’s rule went into effect Nov. 30. The watchdog agency said it would be looking very carefully at how debt collectors use the new means of contacting consumers, including through social media.
“We’re not going to tolerate excessive emails, texts, or DMs, and we expect debt collectors to verify consumers’ identities as well as the underlying debts,” a spokesperson for the CFPB said. “The debt collection industry is on notice: they must treat consumers with respect, and we are going to enforce the law when we see violations.”
But whether or not the CFPB’s new rule applies to mortgage servicers is somewhat of a grey area, although an agency spokesperson said the rule does not specifically exempt the industry.
Its application to mortgage servicers hinges on how the Fair Debt Collection Practices Act defines a “debt collector.” Mortgage servicers are sometimes considered a debt collector under that statute, such as when they service loans on someone else’s behalf, as mortgage subservicers do. Mortgage servicers are also typically considered debt collectors if they acquire the mortgage while it is in default.
The CFPB’s new debt rule comes with some major caveats, including limits on how often a debt collector can contact a borrower. Servicers must verify consumers’ identities as well as the underlying debts, which poses a challenge on social media.
The communications must also be private, meaning mortgage servicers won’t be able to send a public Venmo request for a mortgage payment, or post on the public wall of a borrower’s LinkedIn profile page.
Given that social media platforms’ privacy policies vary, and few have end-to-end encrypted messages, keeping debt-collection conversations private could also be daunting. Meta, the company formerly known as Facebook, has said end-to-end encryption for its Messenger and Instagram might be available in 2022, at the earliest.
Experts are divided on whether mortgage servicers will take advantage of the new capabilities, especially given the CFPB’s increased scrutiny of mortgage servicing, the ambiguities in the new rule, and the limitations of documenting compliance on social media.
Matthew Tully, vice president of agency affairs and compliance at Sagent, which develops mortgage servicing software, said he sees the new rule as a step toward bringing the FDCPA, which dates to 1978, into the 21st century.
“This is the first step of a journey,” said Tully. “The Bureau has opened the door.”
The CFPB may have opened the door for mortgage servicers to negotiate a borrower’s defaulted mortgage via Instagram, but only just barely.
Courtney Thompson, the founder of mortgage servicing advisory firm Consigliera, said that language like “excessive” or “reasonable” to administer the law with flexibility. But subjective language spells uncertainty for mortgage servicers, who are already keenly aware of the new administration’s heightened regulatory leanings.
Thompson said she doubted servicers would do asset-level communication of any kind on social media, because “servicers are struggling to digital communicate with consumers at all,” she said, “let alone on Facebook.”
That’s primarily because servicers need a unified audit trail for all communications with consumers, she said. The need to document everything has kept many servicers using traditional modes of communication — paper and telephone.
Still, others observed that if communicating via social media proves an effective way of reaching consumers, then mortgage servicers will take advantage.
John Toohig, managing director of whole loan trading at financial services firm Raymond James, said he could see mortgage servicers using social media to reach borrowers. That is, until regulators carry out enforcement actions against servicers who do so, with fines big enough to hurt.
“It comes down to whether [the rule] has teeth or not,” Toohig said.
Whether mortgage servicers are ready to start direct messaging consumers, they are already incorporating aspects of the new debt collection rule into their record-keeping systems.
Tully, of Sagent, said the company’s platform for loan servicers, LoanServ, already allows servicers to track contacts based on the CFPB’s new seven-day rule, which limits debt collectors to one call during a seven-day period.
He said that servicers will, in time, use social media to contact borrowers. But there is a long way to go before reliable identity verification systems will allow servicers to contact borrowers with confidence. Until then, they will likely opt for traditional methods of phone, text and email.
“You have to be really sure it’s the right person on Instagram, because otherwise you can get in a lot of trouble,” Tully said. “Is it worth the risk of trying to collect on a debt, only to end up revealing info that shouldn’t have been revealed?”
