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.

Online Group’s S.A.F.E Act Violations

QUESTION
In our recent examination, the banking department cited us for S.A.F.E. Act violations. The worst offenders were in our online group. 

The way we’re set up, the online loan officers separate between those who take an application and those who just answer phones and direct the applicants to loan officers. 

It became a licensing issue based on the definition of “taking an application” and whether anyone who spoke to the applicant was licensed in the property’s state. 

Some of the things we now have to do are install a call recording service, monitor all the calls, additional training, quarterly review of all loan officer licenses, complete description of the “hand-off” procedures, and compliance with the S.A.F.E. Act’s definition of originating mortgage loans. 

The biggest problem we face is defining what the banking department calls “mortgage loan originator activities.” We want to revamp the online group, beginning with a new definition. 

What are “mortgage loan originator activities” according to the S.A.F.E. Act?

ANSWER
There are several aspects of your inquiry leading up to the question itself. I have repeatedly said that a financial institution should not go online unless it has the appropriate policies and procedures in place. It appears that your company did exactly what I have argued against doing! I understand the need to get into online sales, but it should not be at the expense of courting regulatory violations. 

If you had come to us to build an online platform, we would have had you work with our checklist and document review that guide you in establishing an online sales group. We would be interacting every step of the way until you launch the platform. 

Such requirements would include not only the items you mention but also many more features that standardize and stabilize the interaction with consumers and ensure federal and, where applicable, state banking law compliance. 

Our firm already has the policies and procedures to conform to your business model. There are several necessary policy documents. But that’s just one feature of the build. 

You need periodic call calibration. Call calibration, which we offer, is an oversight process to monitor, rate, and report on call compliance by listening to recorded calls. Ideally, this should be done by a compliance professional. 

There are numerous disclosure requirements, both oral and written. 

And the threat of being trapped in a licensing violation is real. We have worked with clients that fell into multistate licensing violations and paid millions of dollars in civil monetary penalties. When you say “hand-off procedures,” I say be careful! 

And, most important, you need to understand what constitutes “mortgage loan originator activities” as defined by the S.A.F.E. Act (“Act”),[i] whose implementing Regulation H describes specific requirements for S.A.F.E. Act-compliant state mortgage loan originator licenses and the Nationwide Mortgage Licensing System and Registry.[ii] 

To answer your question, I will treat three fundamental elements that constitute mortgage loan originator activities. The three components are (1) taking an application, (2) offering or negotiating loan terms, and (3) compensation or gain for rendering such services. 

These are not all the possible scenarios but about as comprehensive as I can provide in the space available for this article. If you want more information, please get in touch with me HERE. 

I will base my response on an appendix to the Act.[iii] This appendix is best understood as providing possible examples to aid in understanding activities that would cause an individual to fall within or outside the definition of a mortgage loan originator. Even then, they illustrate only the issue described and do not illustrate any other issues that may arise. 

Let’s begin by describing a residential mortgage loan as any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling[iv] or residential real estate upon which is constructed or intended to be constructed a dwelling.[v] 

And, broadly, a loan application is a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the borrower or prospective borrower that is customary or necessary in a decision on whether to make such an offer. I know this language seems legalistic – and I guess I can’t help myself! – but in this case, every single word counts. Read it again! 

Taking an Application 

The act of taking a residential mortgage loan application means receipt by an individual for the purpose of facilitating a decision whether to extend an offer of loan terms to a borrower or prospective borrower.[vi]

Here are some examples of taking or not taking an application. 

An individual “takes a residential mortgage loan application” even if the individual: 

·    Has received the borrower or prospective borrower’s request or information indirectly, which means an individual takes an application whether they receive it “directly or indirectly” from the borrower or prospective borrower.[vii] It also means that an individual who offers or negotiates residential mortgage loan terms for compensation or gain cannot avoid licensing requirements simply by having another person physically receive the application from the prospective borrower and then pass the application to the individual; 

·    Is not responsible for verifying information. The fact that an individual who takes application information from a borrower or prospective borrower is not responsible for verifying that information – for example, the individual is a mortgage broker who collects and sends that information to a lender – does not mean that the individual is not taking an application; 

·    Only inputs the information into an online application or other automated system; or 

·    Is not involved in the approval of the loan, including determining whether the consumer qualifies for the loan. Similar to an individual who is not responsible for verification, an individual can still “take a residential mortgage loan application” even if they are not ultimately responsible for approving the loan. For instance, a mortgage broker can take a residential mortgage loan application even though it is passed on to a lender to decide whether the borrower qualifies for the loan and the ultimate loan approval. 

An individual does not take a loan application merely because the individual performs any of the following actions: 

·    Receives a loan application through the mail and forwards it, without review, to loan approval personnel. The Bureau interpreted the term “takes a residential mortgage loan application” to exclude an individual whose only role with respect to the application is physically handling a completed application form or transmitting a completed form to a lender on behalf of a borrower or prospective borrower.[viii] 

·    Assists a borrower or prospective borrower who is filling out an application by explaining the contents of the application and where particular borrower information is to be provided on the application; 

·    Generally describes for a borrower or prospective borrower the loan application process without a discussion of particular loan products; or 

·    In response to an inquiry regarding a prequalified offer that a borrower or prospective borrower has received from a lender, collects only basic identifying information about the borrower or prospective borrower on behalf of that lender. 

Offering or Negotiating Terms of a Loan 

The following examples illustrate when an individual offers or negotiates terms of a loan[ix] and, conversely, what does not constitute an offering or negotiating terms of a loan: 

Offering or negotiating the terms of a loan includes: 

·    Presenting for consideration by a borrower or prospective borrower particular loan terms, whether verbally, in writing, or otherwise, even if:

o   Further verification of information is necessary;

o   The offer is conditional;

o   Other individuals must complete the loan process;

o   The individual lacks authority to negotiate the interest rate or other loan terms; or

o   The individual lacks the authority to bind the person that is the source of the prospective financing. 

·    Communicating directly or indirectly with a borrower or prospective borrower to reach a mutual understanding about prospective residential mortgage loan terms, including responding to a borrower or prospective borrower’s request for a different rate or different fees on a pending loan application by presenting to the borrower or prospective borrower a revised loan offer, even if a mutual understanding is not subsequently achieved. 

Offering or negotiating terms of a loan does not include any of the following activities: 

·    Providing general explanations or descriptions in response to consumer queries, such as explaining loan terminology (i.e., debt-to-income ratio) or lending policies (i.e., the loan-to-value ratio policy of the lender), or describing product-related services; 

·    Arranging the loan closing or other aspects of the loan process, including by communicating with a borrower or prospective borrower about those arrangements, provided that any communication that includes a discussion about loan terms only verifies terms already agreed to by the borrower or prospective borrower; 

·    Providing a borrower or prospective borrower with information unrelated to loan terms, such as the best days of the month for scheduling loan closings at the bank; 

·    Making an underwriting decision about whether the borrower or prospective borrower qualifies for a loan; 

·    Explaining or describing the steps that a borrower or prospective borrower would need to take to obtain a loan offer, including providing general guidance about qualifications or criteria that would need to be met that is not specific to that borrower or prospective borrower’s circumstances; 

·    Communicating on behalf of a mortgage loan originator that a written offer has been sent to a borrower or prospective borrower without providing any details of that offer; or 

·    Offering or negotiating loan terms solely through a third-party licensed loan originator, so long as the non-licensed individual does not represent to the public that they can or will perform covered activities and does not communicate with the borrower or potential borrower. 

Examples:

-    A seller who provides financing to a purchaser of a dwelling owned by that seller where the offer and negotiation of loan terms with the borrower or prospective borrower are conducted exclusively by a third-party licensed loan originator.

-    An individual who works solely for a lender, when the individual offers loan terms exclusively to third-party licensed loan originators and not to borrowers or potential borrowers. 

Compensation or Gain 

An individual acts “for compensation or gain”[x] if the individual receives or expects to receive, in connection with the individual’s activities, anything of value, including, but not limited to, payment of a salary, bonus, or commission. 

Note: The concept “anything of value” is interpreted broadly and is not limited only to payments contingent upon the closing of a loan. 

An individual does not act “for compensation or gain” if the individual acts as a volunteer without receiving or expecting to receive anything of value in connection with the individual’s activities. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
_____________________________
[i] 12 CFR Part 1008 – S.A.F.E. Mortgage Licensing Act – State Compliance and Bureau Registration System (Regulation H)
[ii] Regulation H was issued by the Consumer Financial Protection Bureau to implement the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, title V of the Housing and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 Stat. 2654, 12 U.S.C. 5101 et seq.)
[iii] See Appendix A to Part 1008
[iv] As defined in section 103(w) of the Truth in Lending Act
[v] Ibid, as defined
[vi] See § 1008.103(c)(1)
[vii] Ibid
[viii] This interpretation is consistent with the definition of “loan originator” in section 1503(3) of the S.A.F.E. Act.
[ix] See § 1008.103(c)(2)
[x] See § 1008.103(c)(2)(ii)

Servicing Compliance: New COVID-19 Guidelines

QUESTION
As a servicer, we are working hard to comply with the evolving servicing requirements during the pandemic. 

I am our company’s Chief Compliance Officer and General Counsel. Every time there is a regulatory change, we update procedures, and then a new round of training is done. 

As you probably know, the CFPB issued a final rule on mortgage servicing as it relates to COVID-19. 

I am looking for a brief list of the requirements in the areas of loss mitigation and early intervention. 

To assist us in training on the final rule, what should be on the list of loss mitigation and early intervention compliance with respect to COVID-19? 

ANSWER
The pandemic has caused a seismic shift in servicing guidelines regarding loss mitigation and early intervention. So, you should be focusing on these important compliance challenges. 

As I write, it appears the pandemic is entering a new and more lethal phase due to the Delta variant, a mutation that is reported to be a thousand times more transmissible than the initial COVID-19 virus. Therefore, although the Final Rule (“Rule”) was issued on June 28, 2021, there may yet be additional requirements in the future if the Delta variant wreaks havoc on the rules involving servicing compliance. 

Issued by the Consumer Financial Protection Bureau (CFPB) under the rubric 2021 Mortgage Servicing COVID-19 Final Rule, the Rule amends certain aspects of Regulation X’s mortgage servicing loss mitigation and early intervention requirements. 

The Rule also establishes procedural safeguards for mortgage servicers that help borrowers explore foreclosure alternatives, such as loan modifications or home sales. The rule is effective August 31, 2021. 

I would zero in on three aspects of loss mitigation: temporary COVID-19 safeguards; COVID-19-related loan modifications; and reasonable diligence related to COVID-19. 

As you’ve requested, I will suggest a list, but be sure to provide a deep understanding of implementation, process flow, monitoring, and testing. Construct your training in sections, as I’ve enunciated in my response. 

Loss Mitigation: Temporary Special COVID-19 Procedures Safeguards 

Currently, the mortgage servicing compliance prohibits servicers from making a foreclosure referral or completing specific foreclosure actions in certain circumstances. Generally, a servicer may not make a foreclosure referral until the borrower is more than 120 days delinquent. 

Additionally, if a borrower submits a complete loss mitigation application before the foreclosure referral, generally, the servicer must wait an additional period before initiating foreclosure to satisfy certain conditions to allow the borrower an opportunity to pursue loss mitigation. Indeed, the servicer must determine that the borrower (1) is not eligible for any loss mitigation options and notify the borrower of such; and (2) has exhausted the appeal process. 

If a loss mitigation offer is made, the borrower must reject all offered loss mitigation options or fail to perform under a loss mitigation option agreement. Similarly, if a borrower submits a complete application after foreclosure referral but at least 37 days before the foreclosure sale, the servicer must not complete certain foreclosure actions until these foreclosure protection conditions are met. 

The Rule temporarily adds to the foreclosure protection conditions in certain circumstances. 

From August 31, 2021, through December 31, 2021, unless an exception applies, before referring certain 120-day delinquent accounts for foreclosure, the servicer must ensure that at least one of the temporary procedural safeguards has been met. 

1. The borrower was evaluated based on a complete loss mitigation application, and existing foreclosure protection conditions are met. To meet this safeguard, the servicer must confirm that: 

·        The borrower submitted a complete loss mitigation application, and the servicer evaluated the application. 

·        The borrower remained delinquent since the submission of the loss mitigation application. 

·        The foreclosure protection conditions in existing servicing compliance are met, such that a servicer is permitted by the rules to make a foreclosure referral. 

2. The property is abandoned. To meet this safeguard, applicable state or local law must consider the property securing the mortgage abandoned when referred to foreclosure. 

3. The borrower is unresponsive to servicer outreach. To meet this safeguard, the servicer must not have received any communications from the borrower in the 90 days prior to the foreclosure referral, and the servicer must confirm that: 

·        It has complied with the early intervention live contact requirements in servicing compliance during that 90-day period. 

·        It has provided the early intervention 45-day written notice required by servicing compliance. The servicer must have sent the notice at least 10 but no more than 45 days before the foreclosure referral. 

·        It has complied with all loss mitigation notice requirements in servicing compliance during that 90-day period, such as the notice of an incomplete loss mitigation application. 

·        The borrower’s forbearance program, if applicable, ended at least 30 days before the foreclosure referral. 

Exceptions. 

Temporary procedural safeguards are not required if: 

·        The foreclosure referral occurs (as permitted by applicable law) on or after January 1, 2022. 

·        The borrower was more than 120 days delinquent prior to March 1, 2020. 

·        The applicable statute of limitations will expire before January 1, 2022. 

Loss Mitigation: COVID-19-Related Streamlined Loan Modifications 

Servicing compliance generally prohibits the servicer from evading the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based on the evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application. However, the rules do offer certain exceptions to this general prohibition, allowing some loss mitigation offers that are not based on evaluating a complete application, such as offers of specific short-term payment forbearance programs and certain COVID-19-related loss mitigation options. 

The Rule adds a new exception: it permits servicers to offer certain COVID-19-related loan modification options based on evaluating an incomplete application. To qualify for this exception, the loan modification program must: 

1. Limit loan term extensions. The loan modification must not extend the loan term more than 40 years from the date the modification is effective. 

2. Limit periodic payment increases. The loan modification must not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification. 

3. Prohibit interest accrual on delayed amounts. If the loan modification allows the borrower to delay payment of any portion of the amount owed until the property is sold, the mortgage is refinanced, the modification matures, or, for Federal Housing Administration (FHA) insured loans, until the mortgage insurance terminates, then the loan modification must not allow interest to accrue on those amounts. Such amounts could include, for example, forborne periodic payments. 

4. Be available to borrowers with COVID-19-related hardships.

5. End (or be designed to end) preexisting delinquency. The loan modification must end any preexisting delinquency when the borrower accepts the modification offer. If a trial period applies, the loan modification must be designed to end any preexisting delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent loan modification. 

6. Not include certain fees. The servicer must not charge fees in connection with the loan modification and must promptly waive certain existing fees the borrower owes, such as late fees, penalties, or stop-payment fees, that were incurred on or after March 1, 2020. 

Loss Mitigation: COVID-19-Related Reasonable Diligence 

Under the Rule, if a borrower is in a short-term payment forbearance program made available to borrowers with a COVID-19-related hardship and that program was offered based on an evaluation of an incomplete application, the rule specifies more precisely when the servicer must renew reasonable diligence efforts. For such borrowers, if the borrower remains delinquent, the servicer is required to contact the borrower no later than 30 days before the scheduled end of the forbearance period to determine if they wish to complete the loss mitigation application. If the borrower chooses to do so, the servicer must reinstate reasonable diligence efforts to complete the loss mitigation application before the end of the forbearance period. 

Early Intervention 

Turning now to early intervention, “live contact” comes under regulatory scrutiny. Be sure to monitor staff involved in “live contact information,” possibly using Call Calibration and overseeing any online interactions. Don’t mess up in this area, as dealing with the public can quickly spiral into regulatory, administrative action! 

Early Intervention: Additional Temporary COVID-19-Related Live Contact Information 

Currently, servicing compliance requires a servicer to make good faith efforts to establish live contact with delinquent borrowers no later than the borrower’s 36th day of delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. 

Promptly after establishing live contact, the servicer must inform the borrower about the availability of loss mitigation options, although it has discretion to determine if providing this information is appropriate and the level of specificity provided. 

Separately, servicers are also required to maintain policies and procedures that, among other things, ensure that the servicer’s personnel assigned to a delinquent borrower can identify all loss mitigation options available from the owner or assignee of the borrower’s mortgage as well as the actions the borrower must take to be evaluated for those options. The policies and procedures must ensure that the servicer has the ability to provide that information accurately. 

After establishing live contact under existing servicing compliance guidelines, the Rule temporarily requires a servicer to provide some delinquent borrowers with specific, additional information. The responsive action should be prompt. This requirement applies only until October 1, 2022. 

In particular, there are two categories relating to forbearance: borrowers who are not in forbearance and borrowers who are in forbearance. 

Borrowers not in forbearance 

For borrowers who are not in a forbearance program at the time live contact is established under the existing rules, if the owner or assignee of the mortgage provides forbearance programs for borrowers with a COVID-19-related hardship (as defined in the Rule), then promptly after establishing live contact, the servicer must inform the borrower of the following: 

·        Program availability statement 

·        List and description of applicable programs 

·        Homeownership counseling services 

Borrowers in forbearance 

For borrowers in a forbearance program made available to those experiencing a COVID-19-related hardship at the time live contact is established, the servicer must provide additional information during the live contact that occurs 10 to 45 days before the scheduled end of the borrower’s program. When live contact is established, the servicer must inform the borrower of the: 

·        Scheduled end date 

·        List and description of applicable programs 

·        Homeownership counseling services 

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

Limited English Language Proficiency

QUESTION
Recently, we completed a huge banking examination. During the exit interview, we were shocked to find out that examiners thought we did not provide language support in our assessment areas where most of the population speaks a language other than English at home.

We have loan officers who speak a non-English language. But the examiners still claimed we were possibly excluding customers based on their language differences.

When the exit meeting was over, we all met in the conference room, and somebody said that it’s just too bad if the applicants don’t speak English – she said, “they’re here, they should speak English.” The CEO, who was present at this point, immediately shut her down.

Now, we are tasked with making sure our public facing contact ensures that we are responsive to issues involving limited English proficiency. We are in touch with your firm to monitor our actions, including retaining you for call calibration.

What are some of the challenges we face in addressing limited English proficiency?

ANSWER
As some of you know, I speak several languages. A few so-called dead languages have made their way into my language fluencies. Of the ten languages, I have also taught a few of them at the graduate level. So, language fluency is a matter of significant personal interest. To some extent, I think some companies take the non-English speaking public for granted when it comes to communicating with them in a language they understand.

Thank you for contacting Lenders Compliance Group to assist you. In setting up your language sensitivity program, I think you’re on the right track to have us not only monitoring your forms, disclosures, and advertisements but also conduct call calibration, which audits your telephonic contact with the public. For more information about Call Calibration, contact us HERE. In responding to the examiners, you will want to demonstrate an affirmative defense, such as the foregoing actions would provide.

Our nation consists of many assessment areas, some of which contain communities where English is not the dominant language spoken at home or even in local commerce. How sensitive you are to their language needs is reflective of the understanding of your mission. And, in any event, if your company can’t bring itself to be sensitive to the language needs of the assessment area, regulators will indeed have a way of getting your attention with sufficient tact and circumstance to get you sensitized.

The Dodd-Frank Wall Street Reform and Consumer Protection Act emphasized the role of the CFPB in ensuring “fair, equitable, and nondiscriminatory access to credit.” The Act also prohibited any unfair, deceptive, or abusive act or practice (UDAAP). And, the Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending based on sex, marital status, age, race, color, religion, national origin, receipt of public assistance benefits, or the exercise of rights under the Federal Consumer Credit Protection Act (which includes ECOA, the Truth-in-Lending Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act).

Be aware that the CFPB has instituted enforcement actions against companies that allegedly charged consumers with limited English proficiency (“LEP”) higher prices and offered more limited access to products and services than they charged and provided to more proficient English-speaking consumers.

In January 2021, the CFPB issued a Statement to encourage financial institutions to serve LEP consumers better and to provide principles and guidelines to assist financial institutions in complying with the Dodd-Frank Act, ECOA, and other laws.[i] The Statement offers guidance on how to provide access to credit in languages other than English in a manner beneficial to consumers.

Take note of how the Statement provides the following regulatory attempts to address LEP challenges: 

·        Regulation E's remittance transfer provisions (Electronic Fund Transfer Act) require disclosures in a language other than English in certain circumstances.[ii] 

·        Regulation E's prepaid account sections require financial institutions to provide pre-acquisition disclosures in a foreign language if the financial institution uses that same foreign language in connection with the acquisition of a prepaid account in certain circumstances.[iii] 

·        Regulation Z’s (Truth-in-Lending) provisions: (1) addressing obligations relating to advertising and disclosures in languages other than English for closed-end credit;[iv] and (2) providing that disclosures made in languages other than English must be available in English upon request.[v] 

·        State statutes require transactions negotiated or conducted primarily in a foreign language to include certain documents in the language of negotiation under certain circumstances.[vi]

The CFPB issued the Statement after seeking input from stakeholders on fair lending compliance issues and access to credit issues. Some industry members expressed concern about the fact that over 350 languages (sic) are spoken in the U.S., so it would be unrealistic and cost-prohibitive for any financial institution to fulfill all the credit needs of all customers in all languages.

Understandably, commenters expressed uncertainty about how to prioritize one language over others and what factors to consider when seeking to provide services in one or more languages. Others mentioned the technical, operational, and compliance challenges specific to providing accurate translations.

Some folks were particularly concerned about fair lending risks in making decisions about language selection for non-English language services and about potential UDAAP risks in determining how and in which language to offer products and services, especially when not all products and services are provided in languages other than English.

In my view, the Statement sets forth rather vague guiding principles, such as: 

·        Encouraging financial institutions to serve LEP consumers better while ensuring compliance with relevant Federal, State, and other legal requirements; 

·        Instituting “pilot programs,” where financial institutions that wish to implement pilot programs or other phased approaches for rolling out LEP-consumer-focused products and services may consider doing so in a manner consistent with the guidelines outlined in the Statement; 

·        Developing new products and services, where a company considers developing a variety of compliance approaches related to the provision of products and services to LEP consumers consistent with the guidelines set forth in the Statement; 

·        Ensuring timely disclosure, allowing financial institutions to mitigate certain compliance risks by providing LEP consumers with clear and timely disclosures in non-English languages describing the extent and limits of any language services provided throughout the product lifecycle; and, 

·        Increasing access to credit, where companies consider extending credit under a legally compliant Special Purpose Credit Program (SPCP) to increase access to credit for certain underserved LEP consumers. 

The following are several key guidelines provided in the Statement that are meant to suggest solutions when serving LEP consumers. However, be sure to evaluate any plans in the light of the applicable regulations (such as I mentioned above) as well as potential regulatory scrutiny. 

·        Language Selection. In determining whether to provide non-English language services to LEP consumers and in which language(s), financial institutions may consider documented and verifiable information such as the stated language preferences of its current customers or U.S. Census Bureau demographic or language data. 

·        Product and Service Selection. In determining which products and services to offer in languages other than English, financial institutions may consider various factors, including the extent to which LEP consumers use particular products and the availability of non-English language services. In determining when during the “product lifecycle” financial institutions can offer services in non-English languages and the extent of those services, consider activities and communications – whether verbal or written – that most significantly affect consumers. In making product and service selections, review relevant policies, procedures, and practices for features that pose a heightened risk of unlawful discrimination, including distinctions in product offerings or terms related to prohibited bases or proxies for prohibited bases (i.e., geography). 

·        Language Preference Collection and Tracking. Financial institutions may collect and track customer language information in a variety of ways to facilitate communication with LEP consumers in non-English languages. For instance, in 2017, the CFPB officially approved a redesign of the Uniform Residential Loan Application (URLA) that included a question to collect mortgage applicants’ language preference. Although the FHFA opted to remove that question when it approved the URLA changes (for Fannie Mae and Freddie Mac), financial institutions may use similar questions to obtain customer language preference information outside the mortgage lending context. However, financial institutions must ensure that information collected about language preference is not used in ways that violate applicable laws. Be careful! The CFPB has brought enforcement actions against institutions for alleged violations that resulted, at least in part, from the exclusion of consumers with non-English language preferences from offers provided to similarly situated consumers without those language preferences. 

·        Translated Documents. Financial institutions must comply with Federal and State laws that require translated documents under certain circumstances. If the translation of documents is not mandated, financial institutions may assess whether and to what extent to provide translated documents to consumers. A company that provides translated documents must ensure those translations' accuracy and seek to prioritize communications and activities that most significantly affect consumers. And a financial institution may wish to use translated documents provided by the CFPB and other government agencies.

Whatever you do, make sure that you have activated your “change management” procedures and updated your Compliance Management System (“CMS). We can evaluate your Compliance Management System using our CMS Tune-up, so contact us HERE. 

According to the CFPB, a company may mitigate fair lending and other risks by implementing a strong CMS that affirmatively codifies how to serve LEP consumers in a compliant manner. You can also develop an LEP-specific CMS or integrate an LEP focus into your company’s broader fair lending, UDAAP, and consumer compliance CMS.

At a minimum, I suggest these procedures to be layered into the implementation process:

 Document the Decisions. With respect to providing products and services in non-English languages, document decisions related to the selection of (1) language(s), (2) product(s), and (3) service(s).

Monitor, Audit, Call Calibration. When providing services in non-English languages, be sure to regularly monitor those services, including changes in those services, for fair lending and UDAAP risks. Indeed, it would be best if you considered monitoring or conducting regular fair lending and UDAAP-related assessments of advertising, including promotional materials and marketing scripts for new products. You can accomplish such assessments with our Compliance Tune-up reviews, so contact us HERE.

Fair Lending Testing. Common features of a well-developed CMS include regular statistical analysis of loan-level data for potential disparities on a prohibited basis in underwriting, pricing, and other aspects of the credit transaction

Third-Party Vendor Oversight. If your company contracts with service providers to offer any products or services to LEP consumers, it should ensure that the products and services do not violate applicable laws or pose fair lending or UDAAP risks to LEP consumers. We can provide the service provider approvals through our Vendors Compliance Group. Still, the task of checking for their compliance with applicable consumer financial protection law, fair lending, and UDAAP risk is ultimately the responsibility of your company.

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

Lenders Compliance Group

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[i] “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency,” Bureau of Consumer Financial Protection, 86 FR 6306-6313, January 21, 2021
[ii] 12 C.F.R. § 1005.31(g)(1)(i)
[iii] 12 C.F.R. § 1005.18(b)(9)
[iv] 12 C.F.R. § 1026.24(i)
[v] 12 C.F.R. § 1026.4(e)
[vi] For instance, see Cal. Civ. Code § 1632(b); Or. Rev. Stat. § 86A.198; and Tex. Fin. Code § 341.502(a-1)