Telemarketing Guidelines

QUESTION 

We just acquired a telemarketing company. First of all, we do not know anything about telemarketing. And, in my opinion, the telemarketing company doesn’t know anything about telemarketing laws. 

My company is a mortgage lender, and I am on its Board. I was against this purchase, but I was outvoted. Not only do the telemarketing people not know about telemarketing laws, but our own compliance department knows nothing about these laws. Now, they’re scrambling to understand our compliance risk exposure. 

I was told recently that Lenders Compliance Group is a highly respected compliance firm with a broad knowledge of mortgage banking. So, I’m writing you for assistance. I will ask senior management to get in touch with you, too. We will need help getting our compliance department a checklist, policies, procedures, and other guidance to monitor the telemarketing activities. My regret is that I did not contact you sooner. 

I would like you to publish my question in your FAQ newsletter because I want others to know some of the basics of telemarketing laws, in particular, a list of guidelines. 

What are some compliance guidelines for telemarketing? 

ANSWER 

Thank you for contacting us. Ask your senior management to postpone launching the new telemarketing activities until you have ratified and implemented compliance procedures. We’ll work directly with your compliance personnel to provide the appropriate policies and procedures. If you or anyone else wants to contact me to discuss this area of compliance, please get in touch with me here. 

The foundational requirements for telemarketing is the Telemarketing Sales Rule (TSR, hereinafter “Rule”).[i] The Federal Trade Commission (FTC) and state attorneys general have enforcement tools to combat telemarketing fraud. 

A quick outline of the Rule’s purview[ii] would 

·     require disclosures of specific information, 

·     prohibit misrepresentations, 

·     limit when telemarketers may call consumers, 

·     mandate transmission of Caller ID information, 

·     prohibit abandoned outbound calls, subject to a safe harbor, 

·     prohibit unauthorized billing, 

·     apply to all upsells, even in unsolicited calls from a consumer, 

·     set payment restrictions for the sale of certain goods and services, 

·     require that specific business records be kept for two years, 

·     address the use of prerecorded messages, 

·     prohibit deceptive and abusive practices associated with debt relief services, and 

·     prohibit using remotely created payment orders and checks, cash-to-money transfers, and cash reload mechanisms in outbound and inbound telemarketing. 

If your telemarketing campaigns involve any calls across state lines, like many mortgage-related originations and servicing – and whether you make outbound calls or receive calls in response to advertising – you’re likely subject to the Rule’s provisions. 

The Federal Communications Commission (FCC) enforces telephonic communications pursuant to the Telephone Consumer Protection Act (TCPA), which also regulates telemarketing. 

The very act of contact with the public by means of telemarketing sets in motion a vast range of regulatory compliance requirements and multiple regulatory frameworks. Just considering a generic description of telemarketing should give you an idea of the risk exposure. The Rule describes telemarketing as “a plan, program, or campaign . . . to induce the purchase of goods or services or a charitable contribution” involving more than one interstate telephone call.[iii] With some important exceptions, any businesses or individuals participating in “telemarketing” must comply with the Rule. 

This is true whether, as “telemarketers,” they initiate or receive phone calls to or from consumers, or as “sellers,” they provide, offer to provide or arrange to provide goods or services to consumers in exchange for payment. Whether a company makes or receives calls using low-tech equipment or the newest technology makes no difference. Those making the calls, unless otherwise exempt,[iv] must comply with the Rule’s provisions. If the calls are made to induce the purchase of goods, services, or a charitable contribution, the company is engaging in “telemarketing.” 

Indeed, certain sections of the Rule apply to individuals or companies other than “sellers” or “telemarketers” if these individuals or companies provide substantial assistance or support to sellers or telemarketers. The Rule also applies to individuals or companies that help telemarketers gain unauthorized access to the credit card system by using another merchant’s account to charge consumers, a practice known as credit card laundering. 

There is considerable litigation in telemarketing violations. The FTC, states, and private citizens may bring civil actions in federal district courts to enforce the Rule. State attorneys general or any other officer authorized by the state to bring actions on behalf of its residents may bring actions by the states. Private citizens may bring an action to enforce the Rule if they have suffered $50,000 or more in actual damages. 

Furthermore, anyone who violates the Rule is subject to civil penalties of up to $50,120 for each violation. In addition, violators may be subject to nationwide injunctions prohibiting certain conduct and may be required to pay redress to injured consumers. 

Certain guidelines should be part of every telemarketing program. Telemarketing platforms and programs should be tested and monitored continuously, with reports provided monthly to the Senior Management and the Board. Here’s a brief list of policy statements that must be elaborated on procedurally. The list is not comprehensive; however, it may help you develop a sensitivity to the overall demands of telemarketing compliance.[v] Each item on the list should have a procedural element subject to testing and monitoring. 

Partial List of Telemarketing Procedural Requirements 

Permissible hours 

Procedure: Do not make telephone calls to consumers before 8 A.M. or after 9 P.M. local time at the call’s destination unless the person being called has specifically agreed to a call at another time. 

Do-Not-Call Lists 

Procedure: Maintain a list of consumers who ask not to receive telemarketing solicitations and those whose names appear on the national do-not-call list.

• Honor the requests of consumers who ask not to receive telemarketing solicitations.
• Maintain a process to prevent telephone solicitations to any telephone number on the do-not-call list or the national do-not-call list.
• Maintain appropriate procedures and written policies to comply with the national do-not-call rules.
• Regularly conduct employee compliance training.
• Implement a version of the national do-not-call registry obtained from the administrator of the registry no more than three months prior to the date any call is made and maintain records documenting this process.
• Use a process to not sell, rent, lease, purchase, or use the national do-not-call database or any part of it for any purpose except compliance with the rules and to prevent telephone solicitations to telephone numbers registered on the national database. 

Oral Disclosures for Outbound Telephone Calls 

Procedure: Disclose the following information truthfully, promptly, clearly, and conspicuously in any outbound telephone call to a potential new customer:

• Institution’s identity.
• The purpose of the call is to sell loans.
• That the caller makes mortgage loans. 

Artificial or Prerecorded Voice Calls 

Procedure:

• Do not use an artificial or prerecorded voice call to a consumer’s home unless there is an existing business relationship with the person being called (in which case, identify as such).
• Any artificial or prerecorded voice message releases the line of the person being called within five seconds of notice that the called party has hung up.
• The beginning of any prerecorded message clearly states the caller's identity.
• During or after any prerecorded message, state the caller’s telephone number. 

Call Abandonment

Procedure:

• Do not abandon more than 3 percent of calls answered by a person.
• Deliver a prerecorded identification message when abandoning a call. 

Caller Identification 

Procedure:

• Transmit caller identification (caller ID) information when available, and do not block this information. 

Facsimile Machines 

Procedures:

• Do not send unsolicited advertisements to facsimile machines.
• On any fax, identify the sender.

AML Examinations: Common Audit Findings

QUESTION 

We are a credit union with several branches. Our concern is that we don't believe we have a comprehensive training program for BSA/AML. We are going to have a regulatory examination soon, and I think we will be written up for having an incomplete training program and aids. But that's just one of the weaknesses. 

We need some direction here. First, our compliance manager is contacting your firm to review our written AML program. Second, we need to know the areas of weakness that regulators often find in our AML program. 

What are some areas of weakness we can anticipate being reviewed in an AML examination? 

ANSWER 

If you expect the AML examination soon, you and other subscribers can contact us here. 

We have conducted hundreds of AML risk assessments over the years, and the findings regarding BSA/AML vary depending on the financial institution's risk profile, size, complexity, and products and services. Still, there is a common grouping of weaknesses that tend to recur. 

Before listing the more salient, I urge you to segment your responsibility matrix for those personnel involved in the Anti-Money Laundering review process. Regulators take a keen interest in evaluating whether an institution properly allocates responsibilities and authorities along the chain of command in reviewing AML data. 

Segmenting the specific responsibilities will make the written AML program easier to execute. Importantly, the regulators will be able to determine that your institution is complying in a procedurally reliable way. 

I will segment the responsibilities into four groups: (1) Frontline Staff, (2) Operations Staff, (3) Board of Directors, and (4) New Personnel. Now, consider the following brief description of each. You can take these responsibilities as a "starting point." I suggest you broaden them to reflect your institution's normative information paths.

Frontline Staff 

Responsibilities 

• CTR reporting requirements,

• Recognizing suspicious activity,

• Completing a SAR,

• Customer Identification Program due diligence, and

• Office of Foreign Assets Control (OFAC) requirements (if applicable). 

Operations Staff 

Responsibilities 

• Wire transfers,

• ACH Transactions,

• Debit, Credit, Gift Card Transactions

• Recognizing and reporting suspicious activity related to applicable financial products and services, and

• OFAC requirements (if applicable). 

Board of Directors

Responsibilities 

• Methods to enhance the importance of BSA/AML requirements,

• Consequences and risks of noncompliance, and

• Changes and new developments in the BSA laws and regulations. 

New Personnel 

Responsibilities

• Orientation for BSA/AML overview, 

• Jobs requiring performance of BSA/AML and/or OFAC duties must receive thorough training prior to starting the position.

There are eight recurring weaknesses we have found through our AML risk assessments. I will list them here, with the caveat that they are by no means meant to be comprehensive. Also, keep in mind our AML test audits and risk assessments are focused on residential mortgage loan originations and servicing compliance. 

My advice is for you to review your written AML program to ensure you cover these areas with respect to policies, descriptions, and procedures. And be sure to test them! 

Some Commonly Recurring Weaknesses 

in 

Anti-Money Laundering Programs

• Customer ID Program requirements.

• Timely 314(a) reviews and CTR reports.

• Independent audits must address all the issues they identify.

• BSA policies should note both the BSA/AML officer and the backup BSA/AML officer.

• Risk assessments must consider all new products and services.

• Confidentiality of all SARs must be maintained at all levels of the institution.

• BSA training is kept current and available; examiners scrutinize training records and materials.

• Customize the BSA/AML training program to employees' specific responsibilities. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

Reverse Mortgage Disclosures: Timing Requirements

QUESTION

I have a question about the timing of disclosures on reverse mortgages.

We have just gotten into reverse mortgages and are setting up our rules in the loan origination software.

TILA says we are supposed to disclose three business days before consummation. But we are confused about what special disclosures are subject to that rule. 

Also, if we disclose on Friday, what is the consummation day?

And which particular forms are subject to the three-day rule?

What are the timing requirements for disclosures on reverse mortgage loans?

ANSWER

The Truth in Lending Act (TILA)[i] and its implementing Regulation Z[ii] indicate what disclosures are required. My response will pertain to closed-end, reverse mortgages.

In addition to any other disclosures required by TILA and Regulation Z, creditors must provide the following disclosures in a manner substantially similar to the model form provided in Regulation Z’s Appendix K.[iii] 

I will outline them here, along with brief descriptions.

Disclosure Requirements 

Notice 

A statement that the consumer is not obligated to complete the reverse mortgage transaction merely because the consumer has received the required disclosures[iv] or has signed an application for a reverse mortgage loan. 

Total Annual Loan Cost Rates 

A good-faith projection of the total cost of the credit, determined by Regulation Z[v] and expressed as a table of “total annual loan cost rates.” Regulation Z’s Appendix K gives comprehensive instructions on format and mathematical computation. 

Creditors must use the term “total annual loan cost rate”[vi] rather than “annual interest rate,” as used in TILA.[vii] This rule is based on the belief that the term “total annual loan cost rate” is less likely to be confused with the annual percentage rate (APR) and is a more accurate description of the percentage cost of reverse mortgages.  

The table of “total annual cost rates” requires creditors to disclose total annual loan cost rates for not less than three projected appreciation rates (0 percent, 4 percent, and 8 percent) and not less than three credit transaction periods (two years, a period equal to the consumer’s life expectancy, 1.4 times the consumer’s life expectancy), and an optional fourth period equal to half the consumer’s life expectancy.  

This disclosure is, in fact, modeled on the Department of Housing and Urban Development’s (HUD) Home Equity Conversion Mortgage program. 

Itemization of Pertinent Information 

An itemization of loan terms, charges, the age of the youngest borrower, and the appraised property value. 

Explanation of Table

An explanation of the table of total annual loan cost rates as provided in the model form.[viii]

Timing of Disclosures 

Regulation Z[ix] requires a creditor to give the reverse mortgage disclosures at least three business days prior to 

(1) consummation of a closed-end credit transaction or 

(2) the first transaction under an open-end credit plan. 

This is a situation in which Regulation Z is more specific than TILA,[x] which does not distinguish between a closed-end and open-end plan. 

Regulation Z[xi] requires the creditor to make the disclosures “clearly and conspicuously” in writing, in a form the consumer may keep. The disclosures may be provided to the consumer in electronic form,[xii] subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act).[xiii] 

The Official Staff Commentary offers additional guidance on the timing of disclosures for reverse mortgages.[xiv] Under Regulation Z, the required disclosures must be given within three “business days” of consummation. The applicable Comment[xv] defines “business day” as “all calendar days except Sundays and the federal legal holidays.[xvi] 

The following are legal public holidays: 

New Year’s Day, January 1; 

Birthday of Martin Luther King, Jr., the third Monday in January; 

Washington’s Birthday, the third Monday in February; 

Memorial Day, the last Monday in May; 

Juneteenth National Independence Day, June 19; 

Independence Day, July 4; 

Labor Day, the first Monday in September; 

Columbus Day, the second Monday in October; 

Veterans Day, November 11; 

Thanksgiving Day, the fourth Thursday in November; and 

Christmas Day, December 25. 

With respect to your question about issuing disclosures on Friday, if disclosures are provided on a Friday, consummation may occur any time on Tuesday, the third business day following receipt of the disclosures.[xvii] 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] TILA § 138(a)

[ii] Regulation Z § 1026.33(b)

[iii] Appendix K, Paragraph (d)(1), Regulation Z

[iv] See§ 1026.33

[v] In accordance with Reg. Z § 1026.33(c)

[vi] § 1026.33(b)(2)

[vii] TILA § 138.

[viii] Appendix K, Paragraph (d), Regulation Z

[ix] § 1026.31(c)(2)

[x] TILA § 138(a)

[xi] § 1026.31(b)

[xii] Idem

[xiii] 15 USC § 7001 et seq. See § 2.08.

[xiv] § 1026.31(c)(2)

[xv] 31(c)(2)-1

[xvi]  5 USC § 6103(a)

[xvii] Op. cit. xv

Reasonable Investigation Standard under the FCRA

QUESTION 

I am the General Counsel for a servicer. You have written many times about RESPA’s requirement that mortgage loan servicers conduct reasonable investigations of QWRs. I don’t think there is a reliable definition of a reasonable investigation in RESPA, and I question whether there is one in the FCRA. 

To me, it seems to come down to an arbitrary and somewhat subjective understanding rather than a concrete, time-tested definition. I would like to be able to rely on something more legally applicable. 

My current concern involves credit repair agencies, about which you have written extensively. In particular, I want to know how a reasonable investigation is described procedurally in the Fair Credit Reporting Act with respect to credit repair agencies involved in potential violations. I am being specific because I am currently handling litigation relating to the FCRA and a credit reporting agency. 

I want to know if there is a reasonable investigative standard or set of requirements to follow that comply with the FCRA. 

What is the reasonable investigative standard that complies with the FCRA? 

ANSWER 

You might be interested in Radford v. LoanCare, LLC,[i] litigation alleging a violation of the Real Estate Settlement Procedures Act (RESPA). The case also examined whether LoanCare had complied with the Fair Credit Reporting Act (FCRA) with respect to the reasonable investigation requirement. 

First, let me set forth the requirements, so you have this information up front. 

The FCRA requires furnishers of information to provide accurate information to Credit Reporting Agencies (CRAs). It also requires them to investigate the accuracy of the information they provided if they receive notice of a dispute from a CRA. 

They must 

(1) conduct an investigation; 

(2) review all relevant information provided by the CRA; 

(3) report the results of the investigation to the CRA; 

(4) if the investigation finds that information is incomplete or inaccurate, report those results to all CRAs to which they provided information; and 

(5) if an item disputed by the consumer is found to be inaccurate or incomplete or cannot be verified after investigation, promptly modify that item, delete that item, or permanently block the reporting of that item. 

If the furnisher fails to comply with these requirements, a consumer may sue for actual damages caused by the failure, and seek punitive damages if the furnisher willfully fails to comply. 

Marcialene Radford claimed that LoanCare negligently and willfully violated the FCRA by failing to conduct a reasonable investigation into her credit disputes and verifying inaccurate information to the CRAs. LoanCare defended by arguing that it had investigated Radford’s payment history and determined the CRAs’ reports were accurate, and Radford did not show damages due to the alleged violation. 

Like RESPA, the FCRA does not define the level of investigation required. It simply requires the investigation to be reasonable. I realize you seem to believe the reasonable investigation standard is “arbitrary” and not “time-tested.” Here, the court concluded that the reasonableness of LoanCare’s investigation was genuinely disputed. 

At the time LoanCare received automated credit dispute verification (ACDV) requests from the CRAs, the loan notes on Radford’s account already reflected repeated disputes in the preceding months regarding her June and July payments, but LoanCare did not even claim that it had reviewed those complaints during its investigation. 

Here’s a takeaway: 

While a furnisher of information need investigate only what is contained in the CRA’s dispute notice as to the nature of the dispute, it must actually investigate. That is, it must conduct some degree of careful inquiry. 

In light of the information provided by Radford’s letter, a reasonable jury could conclude that the failure to examine Radford’s repeated disputes and communications fell short of this standard. 

As for damages, the court pointed out that because Radford had alleged both a negligent and a willful violation, she could recover statutory and punitive damages if she could prove a willful violation even if she did not suffer any actual damages. 

In any event, Radford provided evidence of actual damages by presenting some evidence of emotional distress and evidence that LoanCare’s failure to correct inaccurate information had caused her denial of credit. Specifically, her affidavit asserted that her attempts to co-sign her son’s applications for car loans in July and October 2022 were rejected after the car dealerships made credit inquiries with Equifax and Experian. This evidence was sufficient to present a genuine dispute of material fact regarding Radford’s actual damages. As a result, the court denied LoanCare’s motion for summary judgment. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

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[i] Radford v. LoanCare, LLC, 4:21 CV 1368 CDP (E.D. Mo. May. 2, 2023)