QUESTION
We are a federally chartered
savings association and are contemplating opening a mortgage call center. We are in the process of establishing a call
center and, for quality control purposes, would like to record our employees’
calls with our potential customers. We are aware that some states require “two
party consent” and others “one party consent”. However, as a federally
chartered savings bank, can federal preemption be used to preempt state laws
requiring two party consent for the recordation of telephone calls?
ANSWER
The short answer is that
federal preemption cannot be used to preempt state laws requiring two party
consent for the recordation of telephone conversations.
Federal law allows the
recording of telephone calls with the consent of at least one party. [18 U.S.C. § 2511(2)] The majority of states also follow
this “one party consent” rule. However, a minority of states, such as
California, Connecticut, Florida, Massachusetts, and Pennsylvania, require the
consent of all parties to the communication prior to recordation of the
conversation (the “two party consent” rule). If all parties to the conversation
are located in the same state, then that state’s laws apply. However, it is
often difficult to know where the parties are located while the conversation is
taking place, and, for that reason, it is more prudent to follow the two party
consent rule.
As to whether the two party
consent rule is averted through the doctrine of federal preemption, one must
look to the Home Owners Loan Act (“HOLA”). The HOLA expressly provides that Federal
regulations occupy the entire field of lending and credit activities and that Federal
regulations are to be the governing laws for certain activities. State laws
regarding recordation of telephone conversations are not lending laws, but
rather wiretapping and privacy laws. As such, the HOLA preemption does not
apply to these laws and a federal savings association must comply with the
state laws, including those requiring two party consent.
One may assert that the call is
a form of advertisement and disclosures related thereto enjoy preemption. However,
it’s not the act of soliciting the loan, but the act of recording the
conversation which is at issue. As such,
preemption does not apply.
The relevant portion of the HOLA
is set forth below.
12 C.F.R. § 560.2:
Applicability of law [emphases added]
(a) Occupation of
field. Pursuant to sections 4(a) and 5(a) of the HOLA, 12 U.S.C. 1463(a), 1464(a),
OTS is authorized to promulgate regulations that preempt state laws affecting
the operations of federal savings associations when deemed appropriate to
facilitate the safe and sound operation of federal savings associations, to
enable federal savings associations to conduct their operations in accordance
with the best practices of thrift institutions in the United States, or to
further other purposes of the HOLA. To enhance safety and soundness and to enable
federal savings associations to conduct their operations in accordance with
best practices (by efficiently delivering low-cost credit to the public free
from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal
savings associations. OTS intends to give federal savings associations
maximum flexibility to exercise their lending powers in accordance with a
uniform federal scheme of regulation. Accordingly, federal savings associations
may extend credit as authorized under federal law, including this part, without
regard to state laws purporting to regulate or otherwise affect their credit
activities, except to the extent provided in paragraph (c) of this section or §560.110
of this part. For purposes of this section, "state law" includes any
state statute, regulation, ruling, order or judicial decision.
(b) Illustrative
examples. Except as provided in §560.110 of this part, the types of state
laws preempted by paragraph (a) of this section include, without limitation,
state laws purporting to impose requirements regarding:
(1) Licensing,
registration, filings, or reports by creditors;
(2) The ability of a
creditor to require or obtain private mortgage insurance, insurance for other
collateral, or other credit enhancements;
(3) Loan-to-value
ratios;
(4) The terms of
credit, including amortization of loans and the deferral and capitalization of
interest and adjustments to the interest rate, balance, payments due, or term
to maturity of the loan, including the circumstances under which a loan may be called
due and payable upon the passage of time or a specified event external to the
loan;
(5) Loan-related
fees, including without limitation, initial charges, late charges, prepayment
penalties, servicing fees, and overlimit fees;
(6) Escrow accounts,
impound accounts, and similar accounts;
(7) Security
property, including leaseholds;
(8) Access to and
use of credit reports;
(9) Disclosure and advertising, including
laws requiring specific statements, information, or other content to be
included in credit application forms, credit solicitations, billing statements,
credit contracts, or other credit-related documents and laws requiring
creditors to supply copies of credit reports to borrowers or applicants;
(10) Processing,
origination, servicing, sale or purchase of, or investment or participation in,
mortgages;
(11) Disbursements
and repayments;
(12) Usury and
interest rate ceilings to the extent provided in 12 U.S.C. 1735f-7a and part
590 of this chapter and 12 U.S.C. 1463(g) and §560.110 of this part; and
(13) Due-on-sale
clauses to the extent provided in 12 U.S.C. 1701j-3 and part 591 of this
chapter.
(c) State laws
that are not preempted. State laws of the following types are not preempted
to the extent that they only incidentally affect the lending operations of
Federal savings associations or are otherwise consistent with the purposes of
paragraph (a) of this section:
(1) Contract and
commercial law;
(2) Real property
law;
(3) Homestead laws
specified in 12 U.S.C. 1462a(f);
(4) Tort law;
(5) Criminal law;
and
(6) Any other law
that OTS, upon review, finds:
(i) Furthers a vital
state interest; and
(ii) Either has only
an incidental effect on lending operations or is not otherwise contrary to the
purposes expressed in paragraph (a) of this section.
Joyce Wilkins Pollison, Esq.
Director/Legal and Regulatory Compliance
Lenders Compliance Group
