While the Spring 2024 Supervisory Highlights report issued by the Consumer Financial Protection Bureau (CFPB) largely covered loss mitigation deficiencies and fee practices — issues that are regulatory priorities and, therefore, top of mind for mortgage servicers — two potentially under-the-radar findings outlined in the report are actually noteworthy and merit further analysis. First, in Section 2.1.4, the CFPB identified that certain servicers failed to provide adequate descriptions of fees in periodic statements. And second, in Section 2.1.10, the report outlines how one or more servicers failed to retain records in accordance with Regulation X’s requirements.

These findings stand out for multiple reasons. On one hand, the underlying regulatory provisions that support these findings appear straightforward and have not received significant public attention since the mortgage servicing rules went into effect more than a decade ago. Additionally, the CFPB appears to be outlining — and imposing for the first time – expectations regarding what must be done by mortgage servicers to actually comply with the applicable provisions. Furthermore, these expectations are not easily traceable to the applicable regulatory text or even the CFPB’s own official commentary. Therefore, despite receiving the least amount of space in the actual Supervisory Highlights report, it is worth taking a deeper look at these findings.

Failing to provide adequate description of fees in periodic statements

In this finding, the CFPB explained that mortgage servicers “failed to provide a brief description of certain fees and charges” in its periodic billing statements in violation of Regulation Z. In that regard, Section 1026.41(d)(4) requires that a billing statement contain transaction activity and, for each item that causes a credit or debit to the amount currently due, the statement must include “a brief description of the transaction.” In its report, the CFPB took issue with one or more servicers’ practice of labeling certain fees and charges as a “servicing fee.” The CFPB notes that this generic label was utilized “for 18 different fee types, without including any additional descriptive information.” Unfortunately, the CFPB doesn’t provide any additional detail in the report regarding the types of fees or charges for which the description “service fee,” by itself, was deemed insufficient.

Interestingly, neither the text of Regulation Z nor the CFPB’s official commentary include any requirements regarding minimum levels of specificity or prohibitions on having a description be too generic. In fact, the only commentary regarding the requirement to include a “brief description” relates to late fees, where the CFPB explains that “[t]he description of any late fee charges includes the date of the late fee, the amount of the late fee, and the fact that a late fee was imposed.” For other non-late fees and charges, we are left without any other regulatory instructions and the only other applicable requirement comes from Section 1026.31(b), which says that any required disclosures must be made “clearly and conspicuously in writing.”

The CFPB’s report is likely the first public guidance issued by the CFPB on this particular obligation since the law went into effect in 2014. Regardless, even though the law doesn’t obviously obligate any specific amount of specificity, we now know that the CFPB will take the position that too little detail does not meet the threshold obligation to include “a brief description of the transaction.”

Failing to retain records documenting actions taken on mortgage loan accounts

The CFPB explains in this section that one or more servicers violated the record retention provision of Regulation X. In what has always been thought of as a fairly straightforward provision regarding retaining records, Section 1024.38(c)(1) provides that “[a] servicer shall retain records that document actions taken with respect to a borrower’s mortgage loan account until one year after the date a mortgage loan is discharged or servicing of a mortgage loan is transferred by the servicer to a transferee servicer.”

Did the cited servicers destroy or fail to maintain certain records they previously had in their possession? Actually, the CFPB “found that servicers failed to document certain actions in their servicing systems, such as establishing live contact with borrowers.” In other words, the servicers failed to create certain records, and the CFPB found that the failure to document their actions was a violation of the record retention provision of Regulation X.

Once again, there is nothing in the text of Regulation X or the CFPB’s official commentary that suggests that servicers must document or create records of every action taken with respect to a mortgage loan account. However, here, through a Supervisory Highlights report, the CFPB suggests that failing to document actions taken equates to a failure to retain records. Unfortunately, this seems to unreasonably stretch the meaning of the words the CFPB chose to utilize in the regulatory text. The ordinary meaning and dictionary definition of the verb “retain” both mean “to keep,” which necessitates that the thing being retained, or kept, is already in existence. On its face, the regulation does not obligate servicers to document, or create records that reflect, all actions taken on a particular account. Rather, it reasonably suggests that you must retain any records that have been created that document actions taken on an account.

The CFPB, therefore, may be creating a new, more expansive obligation out of what would otherwise appear to be a straightforward regulatory requirement. This raises obvious questions regarding the enforceability of the new mandate and the scope of the CFPB’s expectations for record creation in the context of mortgage servicing.