Banking and Finance Law Daily Early intervention requirements confer a private right of action
Friday, February 23, 2018

Early intervention requirements confer a private right of action

By Lee P. Dunham, J.D.

A federal district court in Virginia upheld the right of consumers to pursue civil claims against their loan servicer for violating a Real Estate Settlement Procedures Act provision mandating that the communication with delinquent borrowers inform them about the availability of loss mitigation options (Vance v. Wells Fargo Bank, N.A., Feb. 20, 2018, Urbanski, M).

Background. RESPA Section 1024.39 requires a mortgage loan servicer to "establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency and, promptly after establishing live contact, inform such borrower about the availability of loss mitigation options if appropriate." The consumers filed a complaint alleging a violation of this provision by Wells Fargo. Wells Fargo moved to dismiss, arguing that the regulation does not convey a private right of action.

Private right of action under RESPA. The court rejected Wells Fargo’s argument, noting that, while the regulation itself is silent as to whether it conveys a private right of action, the history of its promulgation by the Consumer Financial Protection Bureau indicates that such a right was intended. Congress granted the CFPB explicit authority to create regulations under any RESPA section, and the Bureau chose to adopt Section 1024.39 under Section 6, with the knowledge that violations of Section 6 are subject to a private right of action. The court noted that, during the regulation’s notice and comment period, several large bank servicers requested that the statute be adopted pursuant to another section of RESPA, out of concerns that a private right of action would result in uncertainty for servicers and delay the foreclosure process. Nonetheless, after considering these comments, the CFPB persisted in adopting Section 1024.39 under Section 6. As a result, the court concluded that the regulation had been intended to convey a private right of action.

The court contrasted the facts before it with those of Schmidt v. PennyMac Loan Servs., LLC, 106 F. Supp. 3d 859, 861 (E.D. Mich. 2015), in which the court had considered the availability of a private right of action under Reg. X’s Section 1024.40. In Schmidt, the court held that although the CFPB had originally considered adopting Section 1024.40 pursuant to RESPA Section 6, it had ultimately declined to do so in its final ruling, and that therefore, no private right of action was created.

The case is No. 1:17-CV-0034-JPJ-PMS.

Attorneys: Palmer Eric Hurst (Heath J. Thompson, PC) for Jerry Vance. Kevin Philip Oddo (LeClair Ryan, PC) for Wells Fargo Bank, N.A.

Companies: Wells Fargo Bank, N.A.; Professional Foreclosure Corp. of Virginia

MainStory: TopStory CFPB DoddFrankAct Loans Mortgages RESPA VirginiaNews

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