Mortgage Concepts: Is my marketing call TCFAPA compliant?

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video discusses the Telemarketing and Consumer Fraud and Abuse Prevention Act (TCFAPA) and how mortgage loan originators determine how to comply with  telemarketing call rules. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Mortgage loan originators (MLOs) are subject to the Telemarketing and Consumer Fraud and Abuse Prevention Act (TCFAPA) and its associated regulation, the Telemarketing Sales Rule. [15 United States Code §§6101 et seq.; 16 Code of Federal Regulations §§310 et seq.]

The TCFAPA, originally signed into law in 1994, required the Federal Trade Commission (FTC) to introduce a series of rules and prohibitions for companies which engage in telemarketing. The aim of the TCFAPA is to curb the unethical or fraudulent practices of some businesses hoping to market their products and services (such as mortgages) to new customers by phone.

Congress initially enacted the TCFAPA based on findings that:

• telemarketing has extreme mobility, and may be carried out across state lines without any consumer contact;
• the FTC did not have adequate resources to handle the frequency of telemarketing fraud;
• telemarketing fraud costs consumers and others an estimated $40 billion a year; and
• consumers are frequently targeted by other forms of telemarketing abuse such as deceptive marketing. [15 USC §6101]

Thus, the TCFAPA gives the FTC authority to impose rules prohibiting or restricting unethical and abusive telemarketing practices. These rules:

• prohibit a pattern of unsolicited calls “which the reasonable consumer would consider coercive or abusive” of a right to privacy;
• prohibit making telemarketing calls at unreasonable hours; and
• require telemarketers (including telemarketers who solicit charitable contributions) to promptly and clearly disclose the intention of the call, along with other FTC-mandated disclosures. [15 USC §6102(a)(3)]

The TCFAPA has been substantially altered a number of times, first in 2001 as part of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act, which updated the provisions of the TCFAPA to include protections for consumers who might be susceptible to solicitations for charitable contributions.

The TCFAPA was further changed in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to give more authority to the FTC to create and enforce telemarketing rules in the aftermath of the Great Recession, when deception and abuse by mortgage lenders was rampant.

With the guidelines set forth by the TCFAPA and the Telemarketing Sales Rule, the FTC imposed a series of more specific rules to govern telemarketing practices which may be considered deceptive or abusive.

A telemarketer is defined as any person who initiates or receives telephone calls to or from a customer or donor in relation to telemarketing. Telemarketing includes a plan or campaign to induce the purchase of goods or services — such as marketing mortgage services and other sales calls — by use of one or more telephones and involves two or more out-of-state phone calls. [16 CFR §310.2(ff), (gg)]

Does this mean MLOs who only make in-state phone calls are exempt from the TCFAPA?

No. In-state phone calls are covered under the Telephone Consumer Protection Act. The Telephone Consumer Protection Act contains provisions similar to the TCFAPA, but is instead regulated by the Federal Communications Commission (FCC). [47 USC §227 et seq.]

So, what do MLOs need to know about following the TCFAPA?

No telemarketer may misrepresent or fail to disclose:

• the cost and quantity of the offered goods or services;
• all limitations and conditions regarding the offer;
• any policy concerning refunds, cancellations, exchanges or repurchases;
• in a prize promotion, the odds of winning the prize, and that no purchase is necessary to participate;
• any conditions regarding receiving a prize;
• for credit card protection services, the limits of the consumer’s liability for unauthorized use of a credit card;
• the terms and conditions of a “negative option feature,” i.e., when a customer will be charged unless they take action to avoid the charge; and
• for debt relief services, the conditions and limitations of that service, including time necessary to achieve the results of the service. [16 CFR §310.3(a)(1)-(2)]

A telemarketer also may not misrepresent:

• any aspect of the performance, efficacy, nature or central characteristics of the subject of the offer;
• material aspects of an investment opportunity;
• the telemarketer’s affiliation with any person or entity; and
• whether a consumer already has protections provided by the offer. [16 CFR §310.3(a)(2)]

Further, no billing information may be submitted for payment without the customer’s explicit written or recorded oral authorization. [16 CFR §310.3(a)(3)]

Also, no telemarketer may make any false or misleading statement in order to induce a person to accept the telemarketer’s offer. [16 CFR §310.3(a)(4)]

But it is not enough to simply abide by the rules set forth by the FTC for ethical telemarketing practices — any person who knowingly supports or facilitates a violation of these rules is also considered in violation. [16 CFR §310.3(b)]

Consider a company which makes telemarketing calls to solicit donations on behalf of charitable organizations. Some telemarketers working for this company, at the outset of their calls, claim they are not seeking donations from the consumers they are calling.

After making this claim, the telemarketers ask the consumers to deliver materials requesting donations to their friends and family. Then telemarketers then ask the consumers if they would themselves like to donate.

Is this company in violation of the FTC telemarketing rules, and by extension the TCFAPA?

Yes! Current FTC regulations explicitly state telemarketers may not fail to promptly disclose the purpose of their call. Had the company not known about specific telemarketers engaging in this practice, they would still be in violation of the rule for facilitating deceptive telemarketing practices. [United States v. Infocision FTC File Number 162 3021]

While this case specifically concerns a solicitation for charitable donations, the same principle applies to all unsolicited calls — including for real estate or mortgage services. When cold calling a consumer to solicit them to make any purchase or donation, the telemarketer needs to promptly and explicitly state their intention. Doing otherwise may result in a violation of the FTC’s regulations.

Now, consider a mortgage broker who makes calls to consumers and places advertisements online and in newspapers claiming they can offer fixed rate mortgages (FRMs) to refinance existing mortgages at the lowest possible rates and no cost. The broker also claims the loan amount cannot and will not increase.

The broker then informs consumers they will need to apply for more than one mortgage, one at a competitive interest rate and one at much higher rate. They claim the mortgage broker will receive a premium from the mortgage holder on the higher-than-market rate mortgage to pay the fees for the low-rate mortgage.

The broker then claims the low-interest mortgage then will be used to pay off the higher-interest mortgage, leaving the consumer with no fees and low interest.

However, in practice, the mortgage broker leaves consumers with just the high-interest mortgages, often at much higher interest rates than the mortgages the consumers wanted to refinance in the first place. Some consumers, believing they did not have to pay interest on the high-interest mortgages, found their credit reports severely impacted.

Is this a violation of the FTC’s telemarketing sales rules, and thus the TCFAPA?

Yes! The broker misrepresented both the effectiveness of the refinancing they offered, as well as the real interest rates of the mortgages consumers were actually responsible for. The broker also failed to disclose that the consumers would, in fact, be responsible for paying all of the loans for which they applied, not just the promised low-interest mortgages. [FTC v. Ranney Civil Action Number 04-f-1065 (MJW)]

But this case is not only deceptive, it is abusive — the broker requests fees up front, without demonstrating the efficacy of their offer.

The FTC maintains a registry of numbers for consumers who have elected to be placed on a registry inaccessible to sales calls. Telemarketers are prohibited from calling any number on the Do Not Call Registry for sales purposes.

Agents and MLOs who telemarket need to check the Do Not Call Registry before making any telemarketing calls. [16 CFR §310.8(a)]

Telemarketers need to pay an annual fee to access the Do Not Call Registry. The fee is $65 per area code, beyond the first five area codes accessed. Thus, when a telemarketer needs to call potential clients within a single area code (or up to five), they won’t need to pay a fee. But when they cold call clients spanning six area codes, they need to pay $65 for the sixth area code and each area code following, up to a maximum of $17,765. [16 CFR §310.8(c)]

Those who pay for access to the Do Not Call Registry may not share their access to this registry with any other person. [16 CFR §310.8(c)]

Exceptions exist. Telemarketers do not need to check the Do Not Call Registry when:

• the prospective applicant has given them express, signed permission to call a specified telephone number; or
• the MLO can demonstrate an established business relationship with the prospective applicant and the prospective applicant has not indicated they do not wish to receive telephone calls from the MLO. [16 CFR §310.4(b)(1)]

Consider a company which offers credit card debt reduction services. The company places calls to consumers — some of whom are on the Do Not Call Registry — with a prerecorded message verifying that the consumers are interested in debt relief services.

When a consumer confirms they are interested, they are transferred to a telemarketer promising very low interest rates on the consumer’s credit cards. Telemarketers representing the company often imply they are representatives of government agencies. The company also charges up-front fees for their services.

The company does not follow through on its promises, often refusing to refund its customers, citing a “no cancellation” policy.

The company’s conduct is in violation of FTC regulations and the TCFAPA on multiple levels, including:

• contacting consumers with prerecorded messages;
• contacting consumers on the Do Not Call Registry;
• misrepresenting the company’s affiliation with government agencies;
• charging fees before actually providing any debt relief services; and
• failing to disclose the company’s “no cancellation” policy. [FTC v. Ambrosia Web Design Civil Action Number CV-12-2248-PHX-FJM]

Thus, the company qualifies under the TCFAPA and the FTC telemarketing sales rules as both abusive and deceptive — all behaviors the TCFAPA was designed to curb.

Whether or not a phone number is listed in the Do Not Call Registry, the Telemarketing Sales Rule regulates certain aspects of the phone call.

MLOs need to:

• restrict calls to between 8am and 9pm local time unless the prospective applicant has given permission to call at other times;
• allow the phone to ring at least four times or 15 seconds before disconnecting;
• avoid abusive telephone conduct, like:
  • repeatedly or continuously calling a prospective applicant with the intent to harass or annoy; and
  • using profanity or threatening language;
• respect requests to not call back without requiring persons to:
  • listen to a sales pitch;
  • pay a fee;
  • call a different number to honor the request; or
  • identify the MLO making the call;
• disclose truthfully and promptly the:
• identity of the caller;
• purpose of the call, which is to sell a good or service; and
• the nature of the good or service. [16 CFR §§310.4 et seq.]

MLOs may not request or receive money in advance of arranging a loan or any other extension of credit when they have guaranteed or given a high likelihood of success in obtaining or arranging a loan for the person being called. [16 CFR §310.4(a)(4)]

Further, MLOs may not receive a fee for any debt relief service until and unless:

• the MLO has renegotiated, settled or altered the terms of at least one debt of the prospective applicant called;
• the prospective applicant has made at least one payment pursuant to that debt relief service; and
• the fee is either:
  • of a proportional relationship to the total fee required to alter the prospective applicant’s debt; or
  • is a consistent percentage of the amount saved through the debt relief services. [16 CFR §310.4(a)(5)]

MLOs need to receive express and informed permission to charge a person for a good or service. When the MLO is using pre-acquired account information, before using this account to charge the person, the MLO needs to:

• obtain the last four digits of the account number to be charged;
• obtain the person’s express agreement to be charged the identified amount using the identified account; and
• make and keep an audio recording of the entire transaction. [16 CFR §310.4(a)(7)]

Other acts the FTC prohibits as abusive include:

• requesting or receiving payment for recovering money or other valuables a person acquired in a previous transaction until seven business days after that person has received the money or other item;
• disclosing or receiving account numbers for telemarketing purposes (not including receiving billing information for payment);
• submitting billing information for payment without explicit consent of the consumer;
• restricting the number of the telemarketing service from displaying on a caller ID;
• creating a remotely created payment order as payment for goods or services;
• accepting a cash-to-cash money transfer or cash reload mechanism as payment for goods or services;
• interfering with a person’s right to not receive calls from the seller or to be placed on the FTC’s Do Not Call Registry;
• calling anyone who has elected not to receive calls from the seller or who is on the FTC’s Do Not Call Registry; and
• initiating outbound calls with a prerecorded message, unless the consumer has explicitly agreed to receive prerecorded calls from the seller. [16 CFR §310.4(a)-(c)]

Consider a mortgage broker who makes cold calls to homeowners who are behind on their mortgage payments. The broker claims they can stave off foreclosure, promising to attain loan modifications to make the homeowners’ mortgages more affordable. This claim includes the promise of a full refund if the broker fails in achieving the desired loan modification.

The broker even makes these promises to homeowners who have already failed to receive modifications, or are currently facing immediate foreclosure. The broker leads the homeowners to believe that the broker is affiliated with the homeowners’ mortgage holders.

The broker demands a fee up front, and after being paid, tells the homeowners not to contact their mortgage holders or make any more mortgage payments. The broker then leaves homeowners in the lurch, typically rendering them in default on their mortgages.

This is a clearly abusive violation of the FTC’s telemarketing sales rules — the broker not only misrepresented their affiliation with the homeowners’ mortgage holders, but also misrepresented their ability and intention to assist homeowners with their mortgages.

In addition, the broker also demanded and received a fee prior to actually performing any services — an obvious violation of the FTC’s regulations. [FTC v. US Mortgage Funding Civil Action Number 11-Civ-80155]

When an MLO does not follow the TCFAPA, they put themselves at risk of legal action from the FTC.

To date, the FTC has brought legal action against over 100 telemarketers and companies for violating the TCFAPA. The largest penalty was paid by Mortgage Investors Corporation for repeated violations of the Telemarketing Sales Rule.