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The TCPA And Mortgage Servicing Rules: Caught Between A Rock And A Hard Place

Mortgage servicers are heavily regulated. Usually, the worst that can be said is that the laws and regulations are many, complex, and onerous.  Sometimes, however, they are contradictory.

For example, many state and federal rules require servicers to contact delinquent borrowers to prevent foreclosure. Some regulators, like the federal Consumer Financial Protection Bureau (the “CFPB”), require “live” contact.  As a practical matter, servicers will meet this requirement by making telephone calls, a method specifically endorsed by the CFPB.

This, however, puts servicers in the crosshairs of consumer class action plaintiffs’ attorneys specializing in the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”). The TCPA generally prohibits calls to cell phones via an automatic telephone dialing system (“ATDS”) without “prior express consent.”  A plaintiff suing under the TCPA does not have to prove any actual damage, but can recover statutory penalties of $500 to $1,500 for every call in violation of the TCPA—i.e., every call made via ATDS without prior express consent.  On a nationwide class action basis, the potential liability can be crushing.

Under recent rules, the Federal Communications Commission (“FCC”) has dramatically increased the risk of liability under the TCPA. To show prior express consent for a marketing call, a servicer must prove it had clear and conspicuous signed, written consent to call the borrower via ATDS at the specific phone number provided by the borrower, and that the servicer informed the borrower that such consent was not a condition of any good or service.  Plaintiffs’ attorneys will argue that the call constitutes “marketing” if it introduces any new good or service to the borrower, including possible refinance, as an alternative to foreclosure.

According to the FCC, even if a servicer has sufficient prior express consent, a borrower can revoke this consent at any time in any reasonable manner, including orally.

The FCC has also recently found that there is liability under the TCPA even based on mistaken calls. If a servicer intends to call John Doe, but reaches Jane Smith instead, the servicer can still be liable.  Such mistakes usually happen because the servicer mistakenly transcribed or called the number provided by the borrower, the borrower mistakenly provided the wrong number, or the cell phone number had been reassigned from one person to another.

The FCC has also recently interpreted the meaning of ATDS very broadly. ATDS includes not only auto-dialers, but also calls made with telephone equipment that has the “capacity” to auto-dial.  According to the FCC, this is not limited to present capacity but includes potential future capacity, for example by installation of new software.  Under the FCC’s broad definition, most telephone systems operated by mortgage servicers probably have the potential capacity to auto-dial by the installation of new software or otherwise.  Thus, even if a mortgage servicer calls a borrower by manually punching numbers into a desktop phone, this probably does not eliminate liability under the TCPA.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume VI, Number 89


About this Author

Lisa Yun, Trial Practice, Bankruptcy, Attorney, Sheppard Mullin, Law Firm,

Lisa Yun is an associate in the Business Trial Practice Group in the firm's San Diego office.

Ms. Yun practices in the area of general business litigation and bankruptcy law.  She has experience representing financial institutions in civil and bankruptcy proceedings.  Ms. Yun has also successfully represented clients in class action claims involving the federal Telephone Consumer Protection Act (TCPA).

Shannon Z. Petersen, Business Trial Legal Specialist, Sheppard Mullin

Shannon Z. Petersen is a partner in the Business Trial Practice Group in the firm’s Del Mar office and is co-chair of the firm’s consumer class action defense team and the firm’s TCPA class action defense team.

Areas of Practice

Dr. Petersen has substantial trial experience as a business litigator, including consumer class action defense. He has successfully represented clients in claims involving the federal Telephone Consumer Protection Act (TCPA), the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Acting (FCRA), the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Acts (RESPA); California's Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA), Rosenthal Act, Automobile Sales Finance Act (ASFA or Rees-Levering), Vehicle Leasing Act, Confidentiality of Medical Information Act (CMIA); breach of contract, insurance bad faith, unfair business practices, false advertising, fraud, breach of fiduciary duty, negligence, wrongful foreclosure, wrongful repossession, unfair debt collection, unfair credit reporting, unjust enrichment, misappropriation of trade secrets, trademark infringement, quiet title, emotional distress, construction defect, privacy, and receiverships, among others.