[Federal Register Volume 88, Number 83 (Monday, May 1, 2023)]
[Rules and Regulations]
[Pages 26475-26477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09171]



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 Rules and Regulations
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 This section of the FEDERAL REGISTER contains regulatory documents 
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  Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Rules and 
Regulations  

[[Page 26475]]



CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1006


Fair Debt Collection Practices Act (Regulation F); Time-Barred 
Debt

AGENCY: Consumer Financial Protection Bureau.

ACTION: Advisory opinion.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing 
this advisory opinion to affirm that the Fair Debt Collection Practices 
Act (FDCPA) and its implementing Regulation F prohibit a debt 
collector, as that term is defined in the statute and regulation, from 
suing or threatening to sue to collect a time-barred debt. Accordingly, 
an FDCPA debt collector who brings or threatens to bring a State court 
foreclosure action to collect a time-barred mortgage debt may violate 
the FDCPA and Regulation F.

DATES: This advisory opinion is effective on May 1, 2023.

FOR FURTHER INFORMATION CONTACT: Seth Caffrey, Courtney Jean, or 
Kristin McPartland, Senior Counsels, Office of Regulations at (202) 
435-7700 or https://reginquiries.consumerfinance.gov/. If you require 
this document in an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: The CFPB is issuing this advisory opinion 
through the procedures for its Advisory Opinions Policy.\1\ Refer to 
those procedures for more information.
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    \1\ 85 FR 77987 (Dec. 3, 2020).
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I. Advisory Opinion

A. Background

    Leading up to the 2008 financial crisis, many lenders originated 
mortgages to consumers without considering their ability to repay the 
loans.\2\ These practices, which harmed millions of people, included in 
some cases originating products such as ``piggyback'' mortgages in 
which high-interest second mortgages were issued simultaneously with 
the origination of the first mortgage. One common piggyback mortgage 
product, known as an 80/20 loan, involved a first lien loan for 80 
percent of the value of the home and a second lien loan for the 
remaining 20 percent of the valuation. Some consumers in these loans 
found themselves unable to make full payments on their first and second 
mortgages, and when housing prices began to decline in 2005, 
refinancing became more difficult.\3\
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    \2\ See generally 78 FR 79730, 79732-33 (Dec. 31, 2013).
    \3\ Id. at 79733.
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    When a borrower defaults on a second mortgage, the mortgage holder 
may be able to initiate a foreclosure even if the borrower is current 
on the first mortgage. However, the second mortgage holder only 
receives proceeds from the foreclosure sale if there are any funds left 
after paying off the first mortgage. As a result, many second mortgage 
holders of piggyback loans, recognizing that a foreclosure would not 
generate enough money to cover even the first mortgage, charged their 
defaulted loans off as uncollectible and ceased communicating with the 
borrowers. Some sold the loans to debt buyers, often for pennies on the 
dollar. Such sales often occurred unbeknownst to borrowers, who 
continued to receive no communications regarding the loans. Many 
borrowers, having not received any notices or periodic statements for 
years, concluded that their second mortgages had been modified along 
with the first mortgage, discharged in bankruptcy, or forgiven.
    In recent years, as home prices have increased and borrowers have 
paid down their first mortgages, after years of silence, some borrowers 
are hearing from companies that claim to own or have the right to 
collect on their long-dormant second mortgages.\4\ These companies 
often demand the outstanding balance on the second mortgage, plus fees 
and interest, and threaten to foreclose if the borrower does not or 
cannot pay. The CFPB is concerned about homeowners who survived the 
2008 financial crisis but who are now facing foreclosure threats and 
other collection activity because of long-dormant second mortgages. 
These borrowers are often told that they face a choice between entering 
into onerous payment plans or losing their homes and the equity they 
have diligently built since the financial crisis.
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    \4\ See generally Michael Hill, ``Zombie Debt'': Homeowners face 
foreclosure on old mortgages, Associated Press (Nov. 16, 2022), 
https://apnews.com/article/business-mortgages-44b1ffad08a80b96a8630e091d1e96f2.
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    Because of the amount of time that has lapsed on these long-dormant 
loans, some have likely become time barred under State law. Time-barred 
debts are debts for which the applicable statute of limitations has 
expired.\5\ Statutes of limitation are, typically, State laws that 
provide time limits for bringing suit on legal claims.\6\ In most 
States the expiration of the applicable statute of limitations, if 
raised by the consumer as an affirmative defense, precludes the debt 
collector from recovering on the debt using judicial processes.\7\ In 
many jurisdictions, State court (i.e., judicial) foreclosure actions 
are subject to a statute of limitations.
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    \5\ See 86 FR 5766, 5776-77 (Jan. 19, 2021); 12 CFR 
1006.26(a)(2).
    \6\ See 86 FR at 5775-76; 12 CFR 1006.26(a)(1).
    \7\ See 86 FR at 5777.
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    The CFPB understands that some debt collectors collecting on long-
dormant second mortgages may have filed or have threatened to file 
judicial foreclosure actions even though the underlying debt is time 
barred. The CFPB is issuing this advisory opinion to affirm that: (1) 
the FDCPA and its implementing Regulation F prohibit a debt collector, 
as that term is defined in the statute and regulation, from suing or 
threatening to sue to collect a time-barred debt; and (2) this 
prohibition applies even if the debt collector neither knows nor should 
know that the debt is time barred. Accordingly, an FDCPA debt collector 
who brings or threatens to bring a State court foreclosure action to 
collect a time-barred mortgage debt may violate the FDCPA and 
Regulation F.

B. Coverage

    This advisory opinion applies to debt collectors as defined in 
section 803(6) of the FDCPA and implemented in Regulation F, 12 CFR 
1006.2(i).

[[Page 26476]]

C. Legal Analysis

    The FDCPA \8\ and its implementing Regulation F \9\ govern the 
conduct of ``debt collectors'' when they collect ``debt.'' The statute 
and regulation generally define a debt collector as ``any person who 
uses any instrumentality of interstate commerce or the mails in any 
business the principal purpose of which is the collection of any debts, 
or who regularly collects or attempts to collect, directly or 
indirectly, debts owed or due or asserted to be owed or due another.'' 
\10\ Many individuals and entities that seek to collect defaulted 
mortgage loans, and many of the attorneys that bring foreclosure 
actions on their behalf, are FDCPA debt collectors.
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    \8\ 15 U.S.C. 1692-1692p.
    \9\ 12 CFR part 1006.
    \10\ 15 U.S.C. 1692a(6); 12 CFR 1006.2(i). The statute and 
regulation also provide that, for purposes of section 808(6) and 12 
CFR 1006.22(e), the term debt collector also includes any person who 
uses any instrumentality of interstate commerce or the mails in any 
business the principal purpose of which is the enforcement of 
security interests. Id.
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    The FDCPA and Regulation F define ``debt'' as ``any obligation or 
alleged obligation of a consumer to pay money arising out of a 
transaction in which the money, property, insurance, or services which 
are the subject of the transaction are primarily for personal, family, 
or household purposes, whether or not such obligation has been reduced 
to judgment.'' \11\ A consumer's payment obligation arising from a 
mortgage transaction primarily for personal, family, or household 
purposes, such as the purchase of the consumer's residence, falls 
within the plain language of this definition.\12\ It follows that State 
court foreclosure proceedings often constitute the collection of 
``debt'' under the FDCPA,\13\ and debt collectors who engage in such 
debt collection activity are subject to the requirements and 
prohibitions of the FDCPA and Regulation F.
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    \11\ 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
    \12\ See, e.g., Cohen v. Rosicki, Rosicki & Assocs., PC, 897 
F.3d 75, 83 (2d Cir. 2018).
    \13\ Id. at 83-84.
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    Regulation F prohibits a debt collector from suing or threatening 
to sue to collect a time-barred debt.\14\ As the CFPB explained in 
finalizing this prohibition, ``a debt collector who sues or threatens 
to sue a consumer to collect a time-barred debt explicitly or 
implicitly misrepresents to the consumer that the debt is legally 
enforceable, and that misrepresentation is material to consumers 
because it may affect their conduct with regard to the collection of 
that debt, including whether to pay it.'' \15\ Regulation F's 
prohibition on suits and threats of suit on time-barred debt is subject 
to a strict liability standard.\16\ That is, a debt collector who sues 
or threatens to sue to collect a time-barred debt violates the 
prohibition ``even if the debt collector neither knew nor should have 
known that a debt was time barred.'' \17\ Accordingly, a debt collector 
who brings or threatens to bring a State court foreclosure action with 
respect to a time-barred mortgage debt may violate the FDCPA and 
Regulation F. This is true even if the debt collector neither knew nor 
should have known that the debt was time barred.
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    \14\ 12 CFR 1006.26(b).
    \15\ 86 FR 5776, 5778 (Jan. 19, 2021).
    \16\ See id. at 5777, 5781.
    \17\ Id. at 5777.
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    The CFPB also notes that a broad range of non-foreclosure debt 
collection-related activity, such as communicating with consumers about 
defaulted mortgages, can be covered by the FDCPA. FDCPA debt collectors 
undertaking such activity are subject to the other requirements and 
prohibitions of the statute and Regulation F when collecting debt \18\ 
whether or not that debt is time-barred. These include, for example, 
the prohibition on debt collectors: falsely representing the character, 
amount, or legal status of any debt; \19\ threatening to take any 
action that cannot legally be taken or that is not intended to be 
taken; \20\ and selling, transferring for consideration, or placing for 
collection a debt that the debt collector knows or should know has been 
paid or settled or discharged in bankruptcy.\21\ They also include, for 
example, the requirement that debt collectors: identify themselves as a 
debt collector in all communications with the consumer (except formal 
pleadings in connection with a legal action); \22\ provide the consumer 
with validation information in certain circumstances; \23\ and respond 
to consumer disputes adequately before continuing to collect.\24\ 
Finally, even if an FDCPA debt collector engages only in actions 
necessary to undertake a nonjudicial foreclosure action, the debt 
collector is still subject to FDCPA section 808(6) \25\ and Regulation 
F, 12 CFR 1006.22(e),\26\ which generally prohibit taking or 
threatening to take any nonjudicial action to effect dispossession or 
disablement of property if the debt collector has no present right or 
intention to do so.\27\
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    \18\ See 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
    \19\ 15 U.S.C. 1692e(2)(a); 12 CFR 1006.18(b)(2).
    \20\ 15 U.S.C. 1692e(5); 12 CFR 1006.18(c)(1); 15 U.S.C. 
1692f(6); 12 CFR 1006.22(e).
    \21\ 12 CFR 1006.30(b).
    \22\ 15 U.S.C. 1692e(11); 12 CFR 1006.18(e).
    \23\ 15 U.S.C. 1692g(a); 12 CFR 1006.34.
    \24\ 15 U.S.C. 1692g(b); 12 CFR 1006.38(d); 85 FR 76734, 76845-
48 (Nov. 30, 2020).
    \25\ 15 U.S.C. 1692f(6).
    \26\ See 15 U.S.C. 1692a(6); 12 CFR 1006.2(i)(1).
    \27\ See Obduskey v. McCarthy & Holthus LLP, 139 S.Ct. 1029 
(2019) (holding that a business engaged in no more than nonjudicial 
foreclosure proceedings is not a debt collector under FDCPA section 
803(6), except for the limited purpose of FDCPA section 808(6)).
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    Although not the focus of this advisory opinion, the CFPB also 
notes that entities selling or collecting on these second mortgages who 
are mortgage servicers may also be subject to certain requirements 
under the Real Estate Settlement Procedures Act,\28\ the Truth in 
Lending Act,\29\ and the CFPB's mortgage servicing regulations.\30\ For 
example, unless an exemption applies, the CFPB's mortgage servicing 
regulations require servicers to provide periodic statements to 
consumers.\31\
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    \28\ 12 U.S.C. 2601 et seq.
    \29\ 15 U.S.C. 1601 et seq.
    \30\ See, e.g., 12 CFR 1024.33(b) (requiring a transferee and 
transferor servicer to provide a timely notice of transfer of 
servicing to the affected borrower), 12 CFR 1024.39 (requiring 
servicers to make early intervention contacts with delinquent 
borrowers), 12 CFR 1024.41 (requiring servicers to follow certain 
loss mitigation procedural requirements, including certain 
foreclosure-related protections). Note that small servicers, as 
defined in 12 CFR 1026.41(e)(4), are exempt from certain of these 
requirements. See 12 CFR 1024.30(b).
    \31\ See 12 CFR 1026.41(a); see also, e.g., 12 CFR 1026.41(e)(4) 
(exempting small servicers from this requirement) and 12 CFR 
1026.41(e)(6) (exempting servicers from periodic statement 
requirements for certain charged-off loans but only if, among other 
conditions, the servicer sends a specific notice to the consumer and 
does not charge additional fees or interest on the account).
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II. Regulatory Matters

    This advisory opinion is issued under the CFPB's authority to 
interpret the FDCPA, including under section 1022(b)(1) of the Consumer 
Financial Protection Act of 2010,\32\ which authorizes guidance as may 
be necessary or appropriate to enable the CFPB to administer and carry 
out the purposes and objectives of Federal consumer financial laws.\33\
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    \32\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \33\ 12 U.S.C. 5512(b)(1).
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    An advisory opinion is a type of interpretive rule. As an 
interpretive rule, this advisory opinion is exempt from the notice-and-
comment rulemaking requirements of the Administrative Procedure 
Act.\34\ Because no notice of proposed rulemaking is required, the 
Regulatory Flexibility Act does not require an initial or final 
regulatory flexibility analysis.\35\ The CFPB has also

[[Page 26477]]

determined that this advisory opinion does not impose any new or revise 
any existing recordkeeping, reporting, or disclosure requirements on 
covered entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.\36\
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    \34\ 5 U.S.C. 553(b).
    \35\ 5 U.S.C. 603(a), 604(a).
    \36\ 44 U.S.C. 3501-3521.
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    Pursuant to the Congressional Review Act,\37\ the CFPB will submit 
a report containing this interpretive rule and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this interpretive rule as not a 
``major rule'' as defined by 5 U.S.C. 804(2).
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    \37\ 5 U.S.C. 801 et seq.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-09171 Filed 4-28-23; 8:45 am]
BILLING CODE 4810-AM-P