Bill Offers FDCA Help.(Fair Debt Collection Act)

The House has passed a bill by a 420-0 vote that would provide mortgage servicers a special exemption from the Fair Debt Collection Act so that they can work with delinquent borrowers in a less hostile way.

The bill (H.R. 314), sponsored by Rep. Edward Royce, R-Calif., would extend an FDCA exemption enjoyed by lenders to servicers that could cover situations where a servicer is taking over a new portfolio of mortgage servicing rights and some of the borrowers are delinquent.

If adopted by the Senate, it would prevent some servicers from being classified as a debt collector when they try to work with the delinquent borrowers.

Under the bill, a servicer would not have to provide those borrowers with FDCA notices about being a debt collector and warning the borrower that any information they provide can be used against them.

The Mortgage Bankers Association refers to these FDCA notices as "Miranda warnings" that the police are required to give suspected criminals prior to questioning.

"Rather than protecting delinquent borrowers in a transfer, the harshly worded Miranda warnings actually disrupt the establishment of a healthy borrower-servicer relationship and hamper the ability to achieve a workout with the borrower. H.R. 314 would correct this problem," the MBA said in a notice to its members.

The exemption only applies to servicers who engage primarily in servicing performing mortgages and where the collection of debt is incidental to the servicing of the loans.