Privacy in Solicitations
Telemarketing is one method that businesses such as mortgage brokers and lenders use in the solicitation of business. The origination of many mortgages begins with a sales call. However, within the past few years, the enactment of new federal and state laws and regulations has created many restrictions and prohibitions for telephone solicitations, making the telemarketing of mortgages within the bounds of the law a significant challenge.
The Telemarketing Sales Rule
The Federal Trade Commission (FTC) wrote the Telemarketing Sales Rule in 1995 to implement the Telemarketing Consumer Fraud and Abuse Prevention Act (The Telemarketing Act). The laws and rules related to telemarketing have been subject to a number of revisions. The first changes resulted from hearings that the FTC conducted in 2000 to evaluate the effectiveness of the Telemarketing Sales Rule. The most significant amendment that resulted from these hearings was the creation of a Do-Not-Call Registry. In January, 2003, the FTC published the amended rule, which included the provisions for the establishment of a Do-Not-Call Registry.
In March, 2003, President Bush signed the Do-Not-Call Implementation Act authorizing the FTC to maintain the Do-Not-Call Registry. The law also authorized the FTC to collect registry fees from telemarketers and other businesses. The FTC uses these fees to pay the costs of creating and maintaining the Do-Not-Call Registry and to pay the costs associated with enforcement actions against those who violate the law.
The laws related to the maintenance of the Do-Not-Call Registry were further amended in early 2008 with the Do-Not-Call Improvement Act. The primary accomplishments of this law were:
- Making Registrations Permanent: When the Do-Not-Call Registry was originally created, registrations with the Registry expired after five years. Under the amended law, registrations are permanent, and registration renewal is no longer required.
- Requiring More Frequent Updates of the Registry: Under the amended law, the FTC must periodically update the Registry to remove disconnected and reassigned numbers from it.
The most recent changes in the telemarketing rules occurred in 2010. These amendments prohibit telemarketers from charging an advanced fee before providing debt relief services to consumers who are struggling to pay their unsecured debt. This important amendment does not apply to mortgage professionals since it does not address the modification of debt secured by real estate (mortgage or deed of trust).
Although these most recent final revisions to the Telemarketing Sales Rule do not apply to mortgage professionals, the FTC has also issued proposed rules to regulate for-profit companies that offer Mortgage Assistance Relief Services (MARS) through telemarketing and other marketing media. In response to its advanced notice of proposed rule making, many of the state attorneys general, consumer groups and financial service providers urged the FTC to include provisions in its rule that will prohibit the collection of any advance fees for mortgage relief services. It is certain that this prohibition will be included in the final rule.
Many who offered comments during the period for comment on the proposed rule also noted the need to address:
- Deceptive and abusive practices in the marketing of MARS
- Misrepresentations, made by for-profit mortgage relief companies, that they are affiliated with the government, a nonprofit organization, a lender, or loan servicers
The need to address abuses perpetuated by MARS providers is based on studies, which show that there are many unscrupulous providers who promise high success rates but fail to provide any services, even after the collection of substantial fees. The consumers relying on the assistance offered by these MARS providers invariably lose their homes.
On March 10, 2010, the FTC published its proposed rule to regulate MARS providers. This proposed rule includes provisions requiring MARS providers “…to tell consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the consumer’s lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.” 
The proposed rule broadly defines the term “Mortgage Assistance Relief Service Provider” to include any person who “…provides, offers to provide, or arranges to provide any mortgage assistance relief…” (16 C.F.R. Proposed Section 322.2 (i)). Mortgage professionals who have adapted to the new lending environment by offering loan modification services to help borrowers at risk for default are well advised to follow the developments relating to this rule. The period for public comment on the proposed rule is over, and a final rule should be forthcoming.
While drafting the final version of the rule that will create restrictions for sales calls from MARS providers, the FTC has taken aggressive action against telemarketers that have made fraudulent offers for loan modification and foreclosure relief services. These include actions, resolved through settlement orders, against 16 telemarketers, “…all of whom charged consumers upfront fees and made false promises that they could get their loans modified or prevent foreclosure….”  The judgments issued against some of these companies require the payment of damages and penalties in excess of several million dollars.
 “FTC Proposed Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees.” Federal Trade Commission. New Release. 4 Feb. 2010. http://www.ftc.gov/opa/2010/02/mars.shtm
 “FTC Blocks Mortgage ‘Relief’ Services.” Consumer Affairs.Com. 17 June 2010. http://www.consumeraffairs.com/news04/2010/06/ftc_mortgage_relief.html
Definitions Related to the Telemarketing Sales Rule
The following definitions are helpful in understanding the requirements of the Telemarketing Sales Rule.
Abandoned Call: Failure to connect a person to a sales representative within two seconds after the call recipient completes his/her greeting
Established Business Relationship: A relationship between a seller and a consumer based on a financial transaction that they have shared (or based on the consumer’s purchase of goods or services) within the 18-month period that immediately precedes a telemarketing call, or a relationship based on an inquiry by the consumer that takes place within the three-month period that precedes the call.
Seller: Any person who offers to sell goods or services in connection with a telemarketing transaction.
Telemarketer: Any person who, in connection with telemarketing, initiates or receives telephone calls to or from a customer.
Telemarketing: A plan or program to induce the purchase of goods or services with the use of one or more telephones and that involves more than one interstate telephone call.
Requirements of the Telemarketing Sales Rule
Following is a review of the requirements of the amended Telemarketing Sales Rule that apply to mortgage professionals.
Purposes of the Do-Not-Call Provisions of the Telemarketing Sales Rule
The Do-Not-Call provisions of the Telemarketing Sales Rule are intended to protect consumers from unwanted telephone solicitations and from telemarketing fraud. Consumer enrollment on The Do-Not-Call Registry and tough restrictions on calls to those enrolled are the primary mechanisms that the Telemarketing Sales Rule uses to create privacy protections.
Persons Protected by the Do-Not-Call Provisions of the Telemarketing Sales Rule
The Telemarketing Act is a consumer protection law that allows consumers to restrict unwanted sales calls. Individuals must take the initiative to place their phone numbers on the Do-Not-Call Registry. The rules originally required consumers to update their placement on the Registry every five years; however the 2008 amendments revised a consumer’s registration status to permanent.
Calls Subject to the Do-Not-Call Provisions of the Telemarketing Sales Rule
The rule applies to all calls that are made as part of a plan or program to persuade consumers to purchase goods or services. The FTC’s Telemarketing Sales Rule applies to interstate calls only. The Federal Communications Commission (FCC) regulates intrastate telemarketing calls (calls originating from and directed to points within the same state).
Persons and Entities Subject to the Do-Not-Call Provisions of the Telemarketing Sales Rule
The provisions apply to any business or individual engaged in the practice of “telemarketing,” as defined under the Telemarketing Sales Rule.
Calls Exempt from Coverage by Do-Not-Call Provisions of the Telemarketing Sales Rule
There are a few exceptions to the rule. These include:
- Political calls, such as calls from or on behalf of candidates running for political office
- Charities calling on their own behalf to solicit charitable contributions
- Calls to persons with whom a seller or telemarketer has an established business relationship
The third exception listed above is, of course, the exception that applies to some calls made by mortgage professionals. To understand when an “established business relationship” exists, refer to the definitions for this above in the Established Business Relationship section .
Disclosures and Procedures Required By the Do-Not-Call Provisions
Sellers and telemarketers of goods and services must provide a truthful and prompt verbal disclosure of the following information:
- The identity of the seller or telemarketer
- The fact that the purpose of the call is to sell goods or services
- The nature of the goods or services being sold
- Assurance that no purchase or payment is necessary to be able to win a prize or to participate in a prize promotion if a prize promotion is offered and assurance that making a purchase or payment will not improve the odds of winning
One of the most important procedures required by the Telemarketing Sales Rule is the requirement for telemarketers to access the Do-Not-Call Registry every 31 days to update their call lists with the names of individuals who are newly registered on the Do-Not-Call Registry.
Restrictions Related to the Do-Not-Call Registry
Unless a telemarketer limits its calls to individuals with whom he/she has established business relationships, or to individuals who have provided express written agreements to accept calls, it is illegal to initiate calls without obtaining access to the Do-Not-Call Registry.
Record Keeping Requirements for the Telemarketing Sales Rule
Sellers and telemarketers must keep records of materials related to telemarketing activities for a period of 24 months from the date that the materials are produced. Records of the following materials are required:
- Advertising, brochures, telemarketing scripts, and promotional materials
- The name and last known address of each customer, the goods or services purchased, the date they were shipped or provided, and the amount paid for them
- The name, any fictitious name used, and last known home address and telephone number of current and former employees
- Authorizations and informed consent agreements from consumers who agree to receive telemarketing calls
The Telemarketing Sales Rule requires the continued maintenance of records even after the dissolution or sale of a business.
Practices Prohibited by the Telemarketing Sales Rule
The Telemarketing Rule prohibits abusive telemarketing acts or practices, and these include:
- Using threats, intimidation, or profane language
- Placing calls to a person’s residence at any time other than between the hours of 8:00 am and 9:00 pm, using the local time at the person’s location
- Failing to truthfully disclose material information about the goods or services being sold
- Making a false or misleading statement to induce a person to pay for goods or services
- Requiring payment of a fee in advance of obtaining a loan or other extension of credit
- Requesting fees for services to remove derogatory information from a person’s credit records until the time for performing these services has expired and the service provider has given the person a consumer report from a consumer reporting agency showing the achievement of the promised results
- Selling or purchasing unencrypted consumer account numbers for use in telemarketing
- Charging a person for goods or services without express informed consent
- Failing to transmit the telephone number of the telemarketer to a caller information service (such as “Caller ID”) that is in use by the person who is the recipient of the telemarketing call
- Allowing a telephone to ring continuously with intent to abuse or harass the recipient of the call
- Denying or interfering with a person’s right to place his/her name on a Do-Not-Call list
- Initiating a call to a person listed on the Do-Not-Call Registry
- Initiating a call to a person who has stated that he/she does not wish to receive calls from or on behalf of the seller of goods or services
- Abandoning outbound telephone calls
- Selling, purchasing, or using the Do-Not-Call Registry or any other Do-Not-Call list for any purpose other than to prevent telephone calls to telephone numbers included on the lists
- Use of a fictitious name by more than one employee of the seller or telemarketer
- Failing to maintain records as required by the Telemarketing Sales Rule
There are other prohibitions under the Telemarketing Sales Rule that apply to telephone solicitations for charitable donations and to credit card transactions. However, these are generally not applicable to telephone solicitations made by mortgage professionals.
Penalties for Violations of the Telemarketing Sales Rule
Any violations of the Telemarketing Sales Rule are regarded as unfair or deceptive trade practices under the Federal Trade Commission Act. Penalties for unfair and deceptive trade practices are $16,000 for each violation. When violations are continuing, each day of a continued unfair or deceptive trade practice is regarded as a separate violation.
The Telemarketing Sales Rule provides that under certain circumstances, a seller or telemarketer is not liable for making calls to persons on the Do-Not-Call Registry or to persons who have asked not to be called. Liability will not result if the seller or telemarketer can show the following:
- As a part of its routine business practice, it has established and carried out written procedures to prevent unwanted calls and calls to those listed on the Do-Not-Call Registry
- It has trained its personnel in the established procedures
- It maintains a list of telephone numbers that it cannot contact
- It monitors and enforces compliance with its procedures to prevent unwanted telephone calls
- It has a process in place to ensure that no call is made without reference to a version of the Do-Not-Call Registry that was obtained from the FTC no more than 31 days before the call is made
Liability will not result from abandoned calls if the seller or telemarketer can show the following:
- Use of technology that ensures abandonment of no more than 3% of all calls answered by a person, measured per day per calling campaign
- A policy of allowing the telephone to ring for at least 15 seconds or for four rings before disconnecting an unanswered call
- Use of a recorded message identifying the name and telephone number of the seller or telemarketer whenever a sales representative cannot answer the phone within two seconds after the recipient of the call says “hello”
- Maintenance of records establishing compliance with restrictions on telemarketing
- Was the broker’s call to the homeowner compliant with telemarketing regulations?
- Why or why not?
- What are some methods a mortgage professional can ensure compliance with telemarketing regulations in the course of his/her daily business activities?
Discussion Scenario – Analysis
In our discussion scenario presented at the beginning of the article, the mortgage broker was operating in compliance with the Telemarketing Sales Rule. The broker maintained procedures in the office to prevent calls to persons listed on the Do-Not-Call Registry. She also maintained an updated call list.
The broker’s call to the homeowner was not in violation of the Telemarketing Sales Rule because she had a business relationship with the homeowner that was established for less than 18 months before placing a call to the homeowner about a home equity loan. Recent inquiries by the homeowner and his request for a call in the event that interest rates dropped are also indicators that the mortgage broker shared an established business relationship with the homeowner, allowing the broker to make a call to the homeowner in spite of the fact that his name was on the Do-Not-Call Registry.
Maintaining written procedures and training personnel to comply with the Telemarketing Sales Rule is the most effective action that a seller can take to prevent liability for violations of the Rule. As stated in the preceding section on penalties, sellers and telemarketers are not liable for calls to persons listed on the Registry if meaningful and effective procedures to prevent illegal calls are regularly practiced. However, telemarketers cannot delegate responsibility to a third party to maintain accurate lists of numbers that are not on the Do-Not-Call Registry. If they rely on “scrubbed lists” prepared by third parties, they are responsible for making certain that these lists do not include names on the Do-Not-Call Registry.
Discussion Scenario – Real Life Application
A mortgage broker in California incurred penalties of $50,000 as a result of calls placed to over 100,000 persons listed on the Do-Not-Call Registry. The mortgage broker tried to defend the FTC’s enforcement action by claiming that it used “scrubbed lists” purchased from service providers such as title companies. The mortgage broker did not pay the required fee to subscribe to the Do-Not-Call Registry and did not cross-check the scrubbed list with the Registry. The district court did not accept the defense and issued penalties and an injunction, restraining the mortgage broker from initiating any further calls in violation of the Telemarketing Sales Rule. A year prior, the FCC brought a similar action against a mortgage broker in Arizona who used a scrubbed list. The Arizona mortgage broker’s calls to thousands of people listed on the Do-Not-Call Registry resulted in penalties of $77,000.
Although the mortgage broker described in the discussion scenario maintained procedures to comply with the Telemarketing Sales Rule, the content of her call was not in compliance with the law. Promising low interest rates and the most competitive lending terms without reviewing the homeowner’s updated financial information were misleading statements that she used to induce the homeowner to complete a mortgage application. She should have refrained from making these representations until she knew they were true, based on verification of the homeowner’s current financial status. Technically, the unrealistic representations were an unfair and deceptive trade practice, subject to action by the FTC.