Debt Collection: Notice to Cease Communications

QUESTION 

We are facing a potential class action suit for violating the Fair Debt Collection Practices Act. Our company originates and services residential loans. I am the company’s General Counsel. My colleague is Of Counsel. Together, we are writing for some guidance. We already have retained outside counsel to fight the suit; however, we seek some understanding for revising our policies and procedures by outlining the written notice requirements to cease communications. 

Here’s what happened, in part. For a period of approximately six months, we did not cease communications upon receiving the borrowers’ written requests to terminate communications with them. We learned about it due to a servicing quality control review. The servicing quality control reviews should never have been stopped. These audits were only reactivated after receiving consumer complaints, which thereafter led to the lawsuit. 

What are the salient guidelines for a debt collector to cease communications with a debtor upon a written request? 

ANSWER 

I have written and spoken at length about the importance of implementing servicing quality control. Here are just a few of the articles on this subject. For some reason, some servicers – and lenders who use subservicers! – do not conduct servicing quality control. Then lawsuits or regulators come knocking on their door, and they suddenly scramble to do it. 

Our highly credentialed experts provide the servicing quality control audit if you (or anyone else) want it. Regulators and investors know the excellent reliability of our work. So contact us, and we’ll send you information about our servicing quality control. 

It seems like your firm understands the importance of servicing quality control, but somewhere along the line, let the ball drop. Benjamin Franklin’s warning applies: “A little neglect may breed great mischief.” Missing one servicing QC period is a red flag; miss six of them, as in your case, and get ready for a lawsuit! 

Now, let’s zero in on your question. 

The Fair Debt Collection Practices Act (FDCPA)[i] provides that debt collectors must cease to send communications to the consumer upon the consumer’s written request. The term “consumer” is defined under FDCPA[ii]  to include both

(1) the “natural person obligated to pay the subject debt” and

 

(2) certain persons “close to the consumer-debtor,” specifically the consumer’s spouse, parent (if the debtor is a minor under applicable state law), guardian, executor, and administrator. However, other relatives, such as the consumer’s children, parents (if the consumer is not a minor), grandparents, and relatives not included in the special FDCPA definition do not constitute “consumers” under FDCPA.[iii] 

Taking into account this expanded FDCPA[iv] definition of consumer, the FDCPA decrees[v] that whenever a Debtor, et al., (“Debtor”) notifies a debt collector in writing that the consumer

 

(1) refuses to pay the debt sought to be collected or

 

(2) wishes the debt collector to cease further communication with the Debtor, the debt collector must not communicate further with the Debtor regarding the subject debt, except for the following purposes:

 

·       To advise the Debtor that the debt collector’s further collection efforts are being terminated.

 

·       To notify the Debtor that the debt collector or the creditor may invoke specified remedies that are ordinarily invoked by the debt collector or the creditor.

 

·       Where applicable, notify the Debtor that the debt collector or the creditor intends to invoke a specified remedy. 

Furthermore, the FDCPA further provides[vi] that if the notice to the debt collector to cease communications with the Debtor is sent by mail, the notification is complete upon receipt by the debt collector. 

The term “communication” is defined as the conveying of information regarding a debt, orally or in writing, either directly or indirectly, and through any medium. This term includes both oral and written transmissions of messages that refer to a debt.[vii] 

Indeed, the FDCPA expands the definition of “communication,” by stating that “the term ‘communicate’ is given its commonly accepted meaning.”[viii] Thus, “communication” means any contact with the consumer related to the collection of the debt, whether or not the debt is specifically mentioned.”[ix]  

Taking this into account, upon receipt of the notification to cease further communications, debt collectors must cease all oral and written contact with the consumer, their spouse, parent (if a minor), guardian, executor, or administrator, except for the three express exceptions previously discussed. 

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FEATURED SOLUTION

SERVICING QUALITY CONTROL

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In effect, the FDCPA requires that the debt collection show some good manners. Most of our servicing clients adopt the Golden Rule. That principle encourages us to ‘do unto others as you want them to do unto you.’ Of course, the negative reciprocal is not doing unto others as you do not want them to do unto you. Good manners are just a way of being courteous, respectful, and polite. The FDCPA enacts requirements that effectively ensure that the Golden Rule will be enforced, like it or not! 

Put simply, there is a time when further communications between a debt collector and the Debtor should halt. According to the statute establishing legal protection from abusive debt collection practices, published all the way back in 1977, consumer witnesses who related their personal experiences at the congressional hearings testified that they had been innocent third parties wrongly assumed to be the consumer merely because of a slight similarity of names. Also, stories reportedly were presented of abnormally rude and persistent collectors who refused to listen to the consumers’ valid reasons for nonpayment.[x] 

The FDCPA is intended to give relief to consumers being ‘harassed cruelly and relentlessly’ by a few independent debt collectors; it does not, however, enable consumers to avoid payment of just and honest debts. 

Thus, the mandate to debt collectors could not be more clear. 

To draft your policy, I suggest you include a section given to your employees involved in debt collection. Importantly, you must monitor their actions regularly. The section should be in the form of written instructions on implementing the FDCPA requirements. You may want them to sign a receipt for it and require periodic training. 

We are now ready to discuss the salient guidelines to cease communications with a debtor upon a written request. 

Collection procedures manuals should emphasize the following salient points:

 

·       Written Notice Required

In order for the notice requiring the debt collector to cease communications with the Debtor to be enforceable, it must be furnished to the debt collector in writing. Thus, an oral request made by a Debtor in person or over the telephone does not trigger the requirement to terminate all communications.

 

·       No Formal Notice Required

The FDCPA does not require that the written notice be signed. Since the FDCPA does not indicate how formal the notice must be, debt collection employees should be alerted to watch for written notations on returned dunning letters, envelopes, bills, and scraps of paper stating that

 

(1) The consumer refuses to pay the debt, or

 

(2) The consumer wants the debt collector to cease making any further contacts. Upon receipt of any such written messages, a proper cease communications notice is deemed to have been received by the debt collector.

 

·       Notices Permissible from Multiple Persons

The notice to cease communications may be sent to the debt collector not only by the individual who actually or allegedly owes the debt but also by the consumer’s spouse; parent if the consumer is a minor under applicable state law (viz., each state law must be examined on point); legal guardian; and the executor or administrator if the consumer is deceased.

 

·       Effective Date of Notices

Whether the notice to cease communications is delivered by hand or by mail to the collector, it becomes binding on the debt collector and all of the collector’s employees upon receipt in the collection agency’s office.

 

·       All Contact Halted

Upon receipt of the notice to cease communications, the debt collector must cease all contact with the individual consumer and the consumer’s spouse, parent (if the consumer is a minor), or legal guardian. If the notice is received from the executor or the administrator of a deceased consumer’s estate, no further communications may be sent to those officials or the family members of the deceased consumer.

 

·       Some Disputes Not “Notices” 

Debt collectors are not required to cease communicating with the Debtor simply because the consumer disputes the amount or character of the debt or the quality of goods purchased or financed. A cease communications notice is received only when the Debtor writes a note to the debt collector stating either that the consumer

 

(1) refuses to pay the subject bill or

 

(2) wishes the debt collector to cease all further communications. Written statements such as (a) “I won’t pay your bill” or (b) “I don’t want you to call or write me any more letters” would each serve as the requisite cease communications notice.

 

·       Notice as to Multiple Accounts

Debt collectors who handle multiple claims against an individual must cease their communications with the Debtor solely regarding the particular debts or accounts referred to in the notice to cease communications. If the notice relates exclusively to one particular delinquent account, the debt collector may continue debt collection efforts on the other claims. However, if the notice states that the Debtor wants the debt collector to cease future communications concerning all claims the collector is handling or that the consumer refuses to pay all of the debts that the debt collector is seeking to collect, all contacts should be terminated concerning all claims being handled.

I have not discussed here the actions the debt collector should take in response to a cease communications notice; however, the FDCPA allows but does not require the collector to send one final letter or notice that advises the consumer of the following:

·       The debt collector is terminating further efforts to collect the debt from the consumer;

 

·       The debt collector or the creditor may invoke certain clearly specified remedies that are ordinarily invoked by either the debt collector or the creditor; and/or

 

·       Where a clearly specified remedy is available to the debt collector or the creditor and applicable to the debt and the consumer, the debt collector or the creditor actually intends to invoke this remedy. 

The FDCPA states that the debt collector’s response to a written notice to cease communication from a consumer is limited to the three statutory exemptions, as noted above. The response specifically may not contain a demand for payment. 

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director 

Lenders Compliance Group

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[i] Fair Debt Collection Practices Act (FDCPA) § 805(c), 15 USC § 1692c(c)

[ii] § 805(d),15 USC § 1692c(d); for all portions of FDCPA § 805

[iii]  See § 805(d)

[iv] Idem

[v] § 805(c), 15 USC § 1692c(c)

[vi] Idem

[vii] Comment 803(2)-1

[viii] Comment 805(c)-1, for purposes of implementing § 805(c)

[ix] Op. cit. i

[x] Public Law 95-109, 91 Stat. 874, approved September 20, 1977, and subsequently amended, the statute is a consumer protection amendment that establishes legal protection from abusive debt collection practices; it is in the Consumer Credit Protection Act, as Title VIII thereof.

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.