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Mortgage servicers face added legal risks with autodial calls

Under federal policy, mortgage-servicing companies are supposed to contact borrowers early and often after a person falls behind on loan payments, but recently the companies have had to use extreme caution in doing so.

Since this past summer, servicers have been at greater risk of getting slapped with a class-action lawsuit or stiff fines for making unwanted robo calls, legal analysts say.

In July, the Federal Communications Commission (FCC) issued new orders to clarify grey areas in the 1991 Telephone Consumer Protection Act (TCPA) surrounding what constitutes a violation when companies make calls to cell phones using an autodialing system. The act, which was originally aimed at the telemarketing industry but applies to all sorts of companies, also impacts mortgage servicers. 

TCPA prohibits calls to cell phones through autodial systems, except in a narrow range of circumstances.  Under the July order, the FCC broadened the definition of what is considered autodialing. It now include calls made from practically all devices. One rare exception would be if the servicer manually calls customers from rotary phones.

The July order also potentially opens up liability when the servicers appear to have previously obtained consent, such as when the borrower freely gave their number to the company. In this day, servicers are often calling borrowers' cells phones, but sometimes these numbers get reassigned and the servicer is never told that the borrower has dropped the number.

The FCC now says the servicer will only get a legal “safe harbor” for one wrong call. In other words, the company only gets one free pass when they mistakenly call a person who has been reassigned a number formerly used by a borrower — even if the servicer was never informed of the phone-number change by the borrower.

The FCC also gave borrowers more leeway in revoking their consent to receive autodialed calls, an interpretation that analysts say places a high burden on servicers to prove that borrowers have consented to receiving such phone calls. 

Legal analysts say the servicing industry has been exposed to more liability, at least temporarily.  

“There has been a big concern over how the TCPA has been interpreted,” said Donald Lampe, an attorney with Washington D.C.-based Morrison & Foerster.

Lampe said traditional servicers are less impacted than debt collectors, however, and he doubted servicers are “requiring workarounds.”  Lampe said servicers should proceed with caution until the order is clarified, however. Lampe noted that the FCC order is in litigation in a case before the U.S. Circuit Court of Appeals in Washington, D.C. 

“You see much more heightened compliance concerns because of the uncertainty around TCPA, particularly around the use of cell phones,” Lampe said.  

Lampe also noted the apparent conflict with how the Consumer Financial Protection Bureau (CFPB) wants servicers to proceed when borrowers fall behind on payments.  

“The new servicing rules require, in effect, early invention and early communication with borrowers,” he said. “There is some tension between what is done with the TCPA and mortgage-servicing practices that the CFPB expects people to follow.”

Changes could be coming

In February, the Mortgage Bankers Association wrote to several housing regulators, pointing out the conflicts created by federal policy on autodial calls. For example, the trade group said, the Federal Housing Administration (FHA) requires that servicers to contact borrowers within 20 days of a delinquency. MBA’s letter encouraged federal regulators to work with FCC to revise its order.     

 Congress has passed amendments to the law that provide exemptions to companies collecting federally-insured debt, including federally-backed mortgages. These amendments also were included in language in the Bipartisan Budget Act of 2015 signed into law by President Obama. The FCC is expected within the next seven months to undergo a rule-making process to address those changes.  

“We would like federal housing regulators to work with their colleagues at the FCC to ensure that they recognize both the importance of communication, and exclude the government lending programs that we think Congress meant to exclude,” said Justin Wiseman, MBA’s director of loan administration policy. “Broadly, I think it is important to look at the TCPA in the context of the requirements on cell phone communication. That is not just a mortgage-servicing concern.” 


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