The “Carrot and Stick” Disclosure

QUESTION

We were recently told about a “carrot and stick” disclosure for counteroffers under ECOA. Our compliance department wasn’t able to find anything on it, but we would still like to know more. What is this “carrot and stick” disclosure?

ANSWER

The terminology “carrot and stick” for the subject disclosure is rarely used in common compliance parlance. However, there really is a disclosure under the Equal Credit Opportunity Act (ECOA) that old hands at mortgage compliance sometimes still refer to as “carrot and stick.”

This metaphorical term usually refers to the ability of a lender to issue a disclosure that combines a counteroffer with an adverse action notice. A creditor that gives an applicant a combined counteroffer and adverse action notice need not send a second adverse action notice if the applicant does not accept the counteroffer. [12 CFR Supplement I, Part 202, Official Staff Interpretations, § 202.9(a)(1)-6]

Appendix C to Regulation B, the implementing regulation of ECOA, includes a sample of a combined counteroffer and adverse action notice, which is given in form C-4 of Appendix C to the regulation. [12 CFR Part 202, Appendix C-4]

Jonathan Foxx

Managing Director

Lenders Compliance Group

Human Resources Strategies

QUESTION

How should Human Resources strategies relate to today’s challenges for financial services companies?

ANSWER

Over the past ten years of recovering from the financial crisis, companies still face challenges that can be supported with their HR policies and strategies. One of the challenges is damage to reputation and brand. 

Financial Services took a reputational hit during the financial crisis and is no longer an employer of choice. Consequently, employee engagement can be critical in retaining and attracting employees. Employee engagement is an important Human Resources strategy!

Reviews on sites such as Glass Door are explored, particularly by millennials, which is the fastest growing population in the workforce today. Millennials are now becoming the supervisors and managers in companies. Current employees who are engaged are more likely to post positive reviews, spread positive reputation by word of mouth or refer qualified applicants.

Employee disengagement happens over time and is often subtle. However, the signs are not subtle and must be recognized. Disengaged employees don’t perform their jobs well, are a negative influence on other staff, and often create conflicts in the work environment. Disengagement is often caused by a marked difference between employer and employee expectations. Surveys have shown that overall employee satisfaction is the lowest in two decades.

Some areas where employees communicate dissatisfaction are time wasted in unnecessary meetings; conflicts with other work teams; confusion regarding duties and responsibilities; inefficient processes and poor communication; and a marked difference between leadership’s perception and employees’ reality.

What does employee engagement look like?

• Employees take pride in their work, evidenced in the quality performance that enhances productivity and provides exceptional customer service.
• Employees view the company goal as a common goal and work together to accomplish the goals. They believe “We’re all in this together.”
• Employees are loyal and have no plans to leave the company.
• Employees understand and support the company’s mission during good and bad times.

What can an employer do to increase employee engagement?

• Clearly communicate the company's mission and vision.

• Employees are engaged when they understand the goals of the organization and their part in fulfilling the mission and vision. In this way, they feel they are part of the company’s success.

• Provide clear expectations for employee behavior and results. 

• This includes holding employees accountable for results and behavior.

• Provide open and honest communication. 

• Both good news and bad news should be communicated. Lack of communication can create fear and uncertainty and can lead to turnover. In times of uncertainty, it is often high performers who leave because they realize their market value.

• Reward and Recognize. 

• Ensure employees understand they are valued. Incentive plans are not the only way to reward employees.

• Involve employees. 

• When it is possible, engage the employees in decision making. This can be especially important to millennials who value a collaborative approach to work.

• Provide work and life balance. 

• Current workforces highly value having time for other pursuits besides work. Most employees no longer wish to continue working in an environment of continuous long hours and sustained feelings of overwhelming work responsibilities.

• Understand the role of leadership. 

• There is a direct correlation between engagement and leadership behaviors. Leaders who lead by example, openly communicate, and focus on employee well-being make a positive impact on employee morale, which increases employee engagement. The gap needs to close between leadership perceptions and employee realities. Leaders must have a vehicle for hearing employee concerns and recognizing when changes or improvement could be made. Skill development and training for managers to improve leadership behaviors should be available to every level of manager.

Employee engagement can be improved by incremental steps. The first step is embracing the concept of employee engagement and understanding the important role it plays in a company’s bottom line.

Kimberly Braman

Director/Human Resources Compliance 

Lenders Compliance Group

Restricting Contact with Consumers

QUESTION

I have heard that there are only certain times of the day or evenings when a lender or servicer can contact a borrower. Additionally, I have also heard that there are certain things that must be communicated and certain things that cannot be communicated. This is confusing because I do not know what those things are and why they are necessary. Can you help me to understand this better? Also, can you tell me if this applies to anyone that is not a borrower, and who may just be loan shopping?

ANSWER

The questions posed here are directly part of multiple Consumer Protection Laws. Historically, consumers have dealt with much abuse in these areas, where some lenders and servicers have contacted them by telephone, unauthorized at times, calling at inappropriate hours, and the callers not truthfully identifying themselves, making serious threats to consumers or speaking to them in an abusive and/or profane manner. Through the years, there have been a tremendous number of lawsuits against lenders and servicers because of these abuses.

Many states have written laws which prohibit lenders and servicers from violating consumers in these ways. Federal laws have been written by all of the regulating entities, GSE’s and HUD to further afford protection to consumers in the areas where these abuses have taken place. Some of the regulating entities would include the Federal Reserve (FRB), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), and the Federal Deposit Insurance Corporation (FDIC). There are other agencies who concur with protecting the consumers in this same manner, and the specific laws usually contain verbiage stating “the consumer;” therefore, this would apply to all consumers, whether or not they are your company’s borrower or a consumer who happens to be shopping for a loan.  

While an exhaustive list would be difficult to compile in its entirety, please find a short list of the highest risk areas and the most commonly cited in lawsuits and regulatory examination results. I am providing a list, not meant to be comprehensive, based on the following topics: Restrictions on Communications; Abuse/Harassment; False, Deceptive, or Misleading; and Unfair and Unconscionable Actions.       

RESTRICTIONS ON COMMUNICATIONS

• Prohibits the making of any calls being made prior to 8:00 a.m. or after 9:00 p.m. in Potential Customers Time Zone, or at other inconvenient times to a consumer;
• Prohibits repeated calls to third parties in connection to a consumer regarding any loan product;
• Prohibits repeated calls to consumers;
• Prohibits improper calls to a consumer at their place of business, if applicable;
• Prohibits revealing a consumer’s personal information to any third parties;
• Prohibits the continued calling of a consumer after receiving a “Cease Communication” Notice from Potential Customer, either verbally or in writing;
• Prohibits contacting a consumer directly if known to be represented by any Attorney in any connection with the financial institution;
• Prohibits making telemarketing calls using an artificial or prerecorded voice to residential telephones without prior express consent.
• Prohibits making any non-emergency call to a consumer, using an automatic telephone dialing system (“auto-dialer”), or an artificial or prerecorded voice to a wireless telephone number without prior express consent.  (If the call to a consumer includes or introduces an advertisement or constitutes telemarketing, consent must be in writing. If an auto-dialed or prerecorded call to a wireless number is not for such purposes, consent may be oral or written. The FCC has concluded that the Telephone Consumer Protection Act (TCPA), which restricts telephone solicitations (i.e., telemarketing) and the use of automated telephone equipment, includes protections against unwanted calls to wireless numbers, thus encompassing both voice calls and text messages, including short message service (SMS) texts, if the call is made to a telephone number assigned to such service.
• Prohibits the sending of unsolicited advertisements to telephone facsimile machines. The requirement for prior express consent and the facsimile must contain specific “opt out” instructions.

ABUSE/HARASSMENT

• Prohibits falsely threatening illegal or unintended acts to a consumer;
• Prohibits the use of any harassing, abusive and/or oppressive conduct to a consumer;
• Prohibits utilizing obscene, profane, or abusive language to a consumer;
• Prohibits any threats or violence to a consumer under any circumstance;
• Prohibits the use of any language or action that materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; and
• Prohibits the use of language or action that takes unreasonable advantage of:

• a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service; 

• a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; and 

• a consumer’s reasonable reliance on a covered person (i.e., the consumer, themselves”) to act in his or her own and best interests.

FALSE, DECEPTIVE OR MISLEADING

• Prohibits failing to Identify yourselves to a consumer as company employees;
• Prohibits misrepresentation of loan character, amount, or status to a consumer;
• Prohibits falsifying any information of any kind to a consumer;
• Prohibits the act or practice which Misleads or is likely to mislead a consumer;
• Prohibits the use of any language or action that may cause a consumer’s interpretation that is reasonable under the circumstances to become confusing and/or unclear; and
• Prohibits the use of language or action that is misleading to a consumer, and results in a practice that is material. 

UNFAIR AND UNCONSCIONABLE ACTIONS

• Prohibits any discussion involving unauthorized fees, interest and expenses to a consumer;
• Prohibits the use of any language that would pressure or steer a consumer into a loan. 
• Prohibits any unfair language or action to a consumer that causes, or is likely to cause, substantial injury to him/her;
• Prohibits any unfair language or action to a consumer that results in the Injury that is not reasonably avoidable by him/her; and
• Prohibits any unfair language or action where injury to a consumer has been sustained and is not outweighed by countervailing benefits to them.  

Michelle Leigh, CRCM, MBA

Director/Internal Audits and Controls

Executive Director/Servicers Compliance Group

Charging for an “Opt Out”

QUESTION

This is probably a strange question, but it came up in our review of the opt out procedures involving our CAN-SPAM policy. We would like to charge a fee when somebody does an opt out. We want certain requirements in place that a customer has to take, step by step, in order to opt out. So, can a customer be required to pay a fee? Can we require the customer to provide certain information or take some other steps in order to opt out? And what should we do once a customer makes a request to opt out?

ANSWER

The question is not as strange as you think! We actually come across this question sometimes when conducting website and marketing reviews.

To put it succinctly, a sender or any person acting on behalf of a sender may not require that any recipient, in order to exercise an “opt out” request pursuant to the Controlling the Assault of Non-Solicited Pornography and Marketing Act, known as CAN-SPAM, or have the request honored, (1) pay any fee, (2) provide any information other than the recipient’s electronic mail address and “opt out” preferences, or (3) take any other steps except sending a reply electronic message or visiting a single website page. [16 CFR § 316.5]

Once a recipient makes a request using the applicable “opt out” mechanism not to receive some or any commercial electronic mail messages from a sender, the sender may not initiate transmission to the recipient of a commercial electronic mail message covered by the request more than ten business days after receipt of the “opt out” request. [15 USC § 7704(a)(4)(i)]

Jonathan Foxx 

Managing Director 

Lenders Compliance Group