On January 1, 2014, a new regulation by the Consumer Finance Protection Bureau went into effect that prohibits a lender from initiating foreclosure on a residential loan until the debtor is 120 days past due. For those who are unaware, this bureau is an "independent" agency established by the "Dodd-Frank Act" to regulate every lender and debt collector under the sun. Like many regulations set forth by the bureau, conflicting authority has developed over this one. Specifically, lenders need to know whether sending a demand letter is prohibits during this 120 day period.

The most common reading of the regulation is that it is permissible to send notices and demand letters prior to the 120 day period, but it is forbidden to file a complaint until that 120 days elapse.

This is a frustrating predicament because if someone challenges a filing or raises a complaint under the Fair Debt Collection Practices Act for violation of this new rule, there is no guidance available to establish compliance.

Nevertheless, there are conservative lawyers who counsel lenders to be on the safe side and do nothing until the 120 day period expires. Until additional laws are established to clarify this regulation, lenders must proceed at their own risk in sending notices until the debtor is past 120 days default.