On July 10, 2024, the Consumer Financial Protection Bureau (CFPB) released a proposal to amend the existing mortgage servicing rules in Regulation X. The substance of the proposal has attracted a lot of attention and deservedly so. If enacted, the proposed rule would completely overhaul the default servicing framework in Regulation X and institute mandatory translation and interpretation requirements for certain written and oral disclosures. However, many servicers are also concerned about whether the CFPB has the requisite statutory authority to enact these proposals. We analyzed the CFPB’s purported authority for this proposal under the Administrative Procedures Act (APA) and believe that there is significant risk that a court would find that the CFPB lacks the authority to issue rules governing default-related servicing and translation and interpretation services. We explain this analysis in a comment letter that we recently filed and submitted to the CFPB on behalf of a group of mortgage servicer clients.

While our clients are very concerned about the substance of the proposed rule and the burden that it would impose, they are also concerned about the promulgation of a final rule for which the CFPB may lack authority and that would be subject to a judicial challenge. Our analysis focuses on whether the two federal statutes the CFPB cites as sources of rulemaking authority — the Real Estate Settlement Procedures Act (RESPA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) — give the CFPB the authority to issue regulations governing loss mitigation and language access measures.

The CFPB has consistently interpreted its rulemaking authority broadly, including when its mortgage servicing rules were first released in 2013. For example, Congress granted the CFPB authority to issue rules and regulations necessary or appropriate to achieve or carry out the consumer protection purposes of RESPA. In that regard, RESPA sets forth four specific purposes of the statute, none of which relate to loss mitigation or language access. In fact, none of the stated purposes of RESPA even deal directly with mortgage servicing. Nevertheless, the CFPB interprets RESPA to have at least two broad unenumerated consumer protection purposes:

1. To establish requirements that ensure that servicers have a reasonable basis for undertaking actions that may harm borrowers, and
2. To establish servicers’ duties to borrowers with respect to the servicing of federally related mortgage loans.

According to the CFPB, those broad purposes provide justification for rules relating to “maintaining and providing accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees, and facilitating review for foreclosure avoidance options.”

We believe that this claimed source of authority would be subject to close scrutiny in a judicial challenge. A court deciding whether the CFPB has sufficient authority will be guided by recent U.S. Supreme Court decisions addressing agency powers. To start, after the Supreme Court decided Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024), courts must independently determine the “best” reading of the statute in question and give no deference to the agency’s interpretation. Thus, a court would be charged with independently determining what the “consumer protection purposes” of RESPA are, and whether the proposed rules are “necessary or appropriate to achieve or carry out” those purposes, rather than deferring to the CFPB’s interpretation of those purposes. Additionally, under the “major questions doctrine” most recently applied by the Supreme Court in West Virginia v. Environmental Protection Agency, 597 U.S. 697 (2022), courts presume that Congress does not intend to defer broad powers to an agency without a clear and explicit delegation of authority to that agency. Under the analysis required by Loper Bright and West Virginia, we believe it is likely that a court reviewing the CFPB’s authority under RESPA and the Dodd-Frank Act would find it insufficient to support rules related to loss mitigation and language access.

Many servicers are concerned that the CFPB could issue a final rule that would require significant implementation efforts, only to later have a court invalidate the CFPB’s rulemaking efforts. Additionally, such a challenge may also call into question the existing and long-standing framework, leading to chaos and uncertainty for mortgage servicers and borrowers alike. To mitigate that risk, we recommend in the comment letter that the CFPB reassess and refine its explanations of its own rulemaking authority to ensure that any final rule that it may issue is clearly supported by valid grants of authority from Congress. We also recommend that, rather than making significant changes to the existing Regulation X framework, the CFPB should consider leaving the existing framework intact and only make smaller adjustments to correct some of the rule’s admitted deficiencies. For example, we believe that if the CFPB we were to strike the “anti-evasion clause” in Section 1024.41, that would both be easier for the industry at large to implement and much less likely to invite an authority challenge from an industry participant. It would also provide consumers with immediate benefits.

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