Borrowers With Limited English Proficiency (LEP) Present Compliance Challenges for Mortgage Loan Originators and Servicers
According to the latest statistics from the National Institutes of Health, there are approximately 25.6 million individuals in the U.S. with limited English proficiency (LEP). That number is expected to increase in the coming years. HUD defines LEP individuals as “persons who, as a result of national origin, do not speak English as their primary language and who have a limited ability to speak, read, write, or understand.”
Many of these people own homes and have mortgages, which raises important questions for mortgage loan originators and servicers. Specifically, what legal obligations, if any, do lenders and servicers have to LEP borrowers to communicate with them in their preferred primary language? Are lenders and servicers required to provide information and required notices in a language other than English, and do they risk violating state or federal law if they fail to do so?
These questions arise most often with Spanish-speaking LEP borrowers, but the issue is the same for borrowers whose primary language is Polish, Mandarin, Hindi, Portuguese, etc. While no federal laws or regulations require lenders and servicers to communicate with borrowers in a language other than English, several states’ laws do impose such an obligation. And if it is determined that a company’s servicing policies with regards to LEP borrowers result in disparate treatment of, or have a disparate impact on, borrowers on the basis of national origin — especially with respect to loss mitigation — it could expose them to potential liability.
Language and National Origin Discrimination
While, as noted, federal law does not explicitly mandate that lenders and servicers provide non-English language services to LEP borrowers, anti-discrimination laws that prohibit discrimination based on “national origin” could arguably be implicated by a lack of non-English options.
For example, the federal Fair Housing Act (FHA) prohibits discrimination in housing based on race, color, religion, sex, familial status, national origin, and disability. Where a policy or practice that restricts access to housing based on LEP has a discriminatory effect based on national origin, race, or other protected characteristics, such policy or practice could violate the FHA if it is not necessary to serve a substantial, legitimate, nondiscriminatory interest of the housing provider, or if such interest could be served by another practice with a less discriminatory effect.
Similarly, while the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, does not directly prohibit discrimination based on language, it makes it unlawful for any “creditor” to discriminate against consumers based on “race, color, religion, national origin, sex or marital status, or age.”
A recent ECOA enforcement action based on conduct involving the servicing of non-mortgage loans provides an example of how regulators may deem certain practices discriminatory to LEP borrowers. In that case, a bank excluded customers with a “Spanish-preferred” indicator or a mailing address in Puerto Rico from debt relief and settlement offers available to other similarly delinquent borrowers. Regulators alleged this conduct was not “justified by a legitimate business need” and constituted discrimination based on national origin.
Financial institutions also must comply with Dodd-Frank Act prohibitions against engaging in any unfair, deceptive, or abusive act or practice (UDAAP). A recent settlement between a large nationwide servicer and 48 state attorneys general involving alleged UDAAP-violative servicing required the loan servicer to implement numerous changes to its practices with LEP borrowers, including providing translation services, accepting hardship letters and state and federal government forms in foreign languages, and requiring vendors to implement policies and procedures related to LEP borrowers.
Compliance With State Law Translation Requirements
Some states, such as Arizona, California, the District of Columbia, Oregon, and Texas, have enacted laws requiring that certain loan documents be translated into the borrower’s language. The purpose is to help the borrower fully understand the terms of the agreement. Lenders and servicers need to pay close attention to the laws of the state in which the borrower resides to determine the extent of their obligations to LEP borrowers.
Best Practices for Servicing LEP Borrowers
The Consumer Financial Protection Bureau (CFPB) has issued guidance on actions financial institutions can take to ensure they comply with the ECOA, the prohibitions against UDAAPs, and other applicable laws as they relate to LEP borrowers.
Additionally, the Department of Justice has recognized the 2016 HUD LEP Guidance as a reasonable interpretation of the FHA. In that guidance, HUD stated that “refusing to allow an LEP borrower to have mortgage documents translated, or refusing to provide the borrower with translated documents that the lender or mortgage broker has readily available, is likely not necessary to achieve a substantial, legitimate, nondiscriminatory interest.”
There is no bright line requirement for servicers to provide LEP borrowers with translation services. Instead, servicers must navigate a web of intersecting federal and state consumer protection laws to ensure their practices involving such borrowers do not result in treatment or effects. Sound practice leans heavily in favor of providing LEP borrowers with a baseline level of translation services that also comply with state-specific translation requirements, where applicable.
If you have questions or concerns about servicing LEP borrowers, please contact Sydney Wright at Maddin Hauser.