“Did My Borrowers Revoke Their Consent to Be Called on Their Cellphone?”

January 2016

Lenders often wonder what they can and cannot do to collect a debt. "What can I say in demand letters to borrowers and guarantors?" "Can I call my borrower? - When?" "Can I call a borrower's cellphone?" "Can I use an auto-dialer?" Most states have various consumer protection laws, and several federal laws spell out restrictions in this area, including the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act (TCPA). These laws and restrictions generally apply to consumer loans (loans made for personal, family, or household purposes) rather than business loans.

Limitations Set by the TCPA

Calling a borrower is often the first step in the collection effort, and in today's wireless world, that typically means calling a cell phone. The TCPA, passed by Congress in 1991, constrains how a lender can call a consumer borrower, such as prohibiting calls before 8 a.m. or after 9 p.m. local time. The TCPA also prohibits making auto-dial calls to cell phones without the "prior express consent of the called party." A violation could result in statutory damages of $1,500 per occurrence.

Florida Bankruptcy Court Weighs in

A Florida bankruptcy court recently weighed in on whether a borrower effectively revoked his "prior express consent" to be called on his cellphone. (Welch v. Green Tree Servicing LLC, Adv. No. 8:13-ap-00344, U.S. Bankruptcy Court, M.D. Fla. 2015.) In the case, a husband and wife obtained a home mortgage loan in 2007 and defaulted in 2010. Lender started calling, and on one of the calls, the husband provided the name and contact information for the couple's attorney. Lender continued to call and send letters to the couple. Lender ultimately made 11 auto-dial calls to the husband's cell phone. The couple subsequently filed chapter 7 bankruptcy, and their bankruptcy trustee sued Lender for violations of the TCPA.

Lender argued that its phone calls were allowed because the debtor couple had provided the husband's cell phone number on the loan application and never revoked the authorization to call that number. The bankruptcy court agreed that providing the number was "prior express consent" to be contacted. But the husband argued that he had impliedly revoked his consent by giving the name of the couple's attorney to Lender. At trial, the husband admitted that he did not clearly tell Lender to stop calling his cell phone. The bankruptcy court concluded that a borrower must provide "express and clear revocation of consent; implicit revocation will not do." Consequently, the bankruptcy court denied liability under the TCPA, finding that the initial consent on the loan application remained effective.

Although this finding was favorable to Lender, it did not escape liability. The trustee also invoked against Lender a Florida consumer collection practice law that prohibits contact with a borrower after a borrower is represented by counsel. The court found Lender liable to both husband and wife under this statute, even though most contact had been with the husband's cell phone. The court awarded $2,000 in damages – and denied Lender the right to set off this amount against the amount due under the mortgage, concluding that Lender must appreciate the effect of statutory violations, and the penalty would be relatively unnoticed if setoff were permitted.

Loan collection tends to be challenging, especially when consumer protection laws apply. Make sure that before venturing into the collection minefield, you understand what laws apply.

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