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Banking and Financial Matters Blog

Autodialing and Pre-Recorded Messages: the TCPA’s Trap for Unwary Lenders and Debt Collectors

Authored by Paul J. Mirr
Posted on February 27, 2017
Filed under Banking and Financial Matters

In February 2015, a federal judge approved a $75 million Telephone Consumer Protection Act (“TCPA”) class settlement involving Capital One and three debt collectors.[1] The plaintiffs (debtors) alleged that Capital One and debt collectors called their phones to collect credit card debts using an automatic telephone dialing system or an artificial or pre-recorded voice without their prior consent. While this is an extreme example, it demonstrates the danger of using automated dialing systems or an artificial or pre-recorded voice to make collection calls, especially considering that the TCPA does not provide a cap on potential damages.  While the TCPA limits damages to $1,500 per call, plus attorneys' fees, there is no cap on the number of telephone calls you may be responsible for in a class action lawsuit.  Exposed to unlimited liability for improper calls, lenders and debt collectors must make sure that all use of automatic dialing systems or pre-recorded messages strictly complies with the TCPA and with recent FCC interpretations that broaden the TCPA’s scope.

The TCPA

The TCPA[2] was enacted in 1991 to protect consumers from aggressive telemarketing calls and faxes. It regulates calls and transmissions using automatic telephone dialing systems (“ATDSs”) and certain artificial or pre-recorded voice calls. Prior consent from the phone owner is not necessary for debt collection calls to residential landlines, even if the calls use ATDSs or pre-recorded voices because the FCC has held that debt collection calls are not “telemarketing calls.” However, with a few exceptions, the TCPA prohibits businesses from using ATDSs or pre-recorded voices to call consumers’ cell phones without the consumers’ “prior express consent,” regardless of whether the calls are for telemarketing or not. A “call” includes text messages. Businesses may call (or text) customers’ cell phones with the help of ATDSs and pre-recorded messages for purposes such as providing authentication codes and notifying customers of certain financial emergencies, but, as will be discussed later, lenders must still be careful to comply with the TCPA’s fairly stringent regulations when doing so.

“Automatic Telephone Dialing System”

The TCPA defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers” (emphasis added). This definition includes equipment that has the capability to store or produce and dial random or sequential numbers, even if it is not presently used for that purpose. Even if not currently using the function, businesses need to check into their equipment’s capabilities to ensure that, if the equipment does have ATDS capacity, they are getting customers’ consent prior to making artificial or pre-recorded calls (or texts).

“Prior Express Consent”

General best practice is for businesses to get a customer’s consent at the beginning of a relationship and to reaffirm the consent whenever possible. Regarding debt collection, a 2012 FCC Report and Order clarified that ATDS and pre-recorded message calls to cell phone numbers provided by the called party in connection with an existing debt are considered to be made with prior express consent. However, the cell number must be obtained “as part of the transaction that resulted in the debt owed.” This means that each time a borrower takes out a new loan, the cell number will need to be re-obtained by the lender in order to have consent to use an ATDS or pre-recorded message. The caller has the burden to prove that it used ATDSs or pre-recorded messages with the consent of the called party.

Revocation of Consent

Consumers may revoke their consent at any time and through “any reasonable means.” The revocation may be orally, in writing, or through “any manner that clearly expresses a desire not to receive further messages.” Callers are not allowed to restrict the means by which consumers may revoke consent.  Thus, it is a good idea for lenders and debt collectors to have a consent tracking system in place.

Liability for Calling Reassigned Wireless Numbers

This issue comes up when a caller uses an ATDS or pre-recorded message to call a cell phone number for which it previously had consent but which number was subsequently reassigned to another person who did not consent. The TCPA provides a safe harbor, allowing a caller with a “reasonable basis” for believing it has consent to make one call after reassignment without incurring liability. This “one call” safe harbor only applies when the caller has obtained express consent from the previous owner of the cell number.

Damages for Violations

Unintentional violations of the TCPA can result in damages of $500 per call, plus the plaintiff’s attorneys’ fees and costs. Willful or knowing violations can increase damages to $1,500 per call.  The ability to collect attorneys’ fees makes pursuit of class actions attractive to plaintiff’s attorneys.

Exceptions

The TCPA does exempt ATDS and pre-recorded messages concerning the following from its express consent requirements, so long as the calls are not charged to the recipient:

  1. Transactions and events that suggest a risk of fraud or identity theft;
  2. Possible breaches of the security of customers’ personal information;
  3. Steps consumers can take to prevent or remedy harm caused by data security breaches; and
  4. Actions needed to arrange for receipt of money transfers.

These exemptions are subject to a few conditions, including stating the name and contact information of the caller at the beginning of the call, keeping the calls concise, offering an easy means for called parties to opt out, and making no more than three calls per event over a three-day period to an affected account.

Although the TCPA does not explicitly exempt them, the FCC has held that texting dual-authentication log-in codes to customers in order to set up an online account is not a violation of the TCPA’s restrictions as long as the one-time message is sent immediately after the customers’ requests for the texts.

Recommendations

Given the TCPA’s strict guidelines regarding ATDS and pre-recorded message calls, the following are a few recommendations that can help prevent lenders and debt collectors from incurring the unlimited per-call penalties:

  1. Obtain customers’ consent at the beginning of the relationship and re-affirm it as often as possible;
  2. All credit applications should request borrowers’ cell phone numbers and should specifically state that, by providing a cell number on the application, the borrower consents to the use of ATDSs and pre-recorded messages;
  3. Credit applications should require borrowers to agree to give the lender notice when their cell phone numbers change. Although this will not absolve lenders of liability to number assignees who have not consented, it will give lenders an action against the borrower for damages that it may have to pay the assignee;
  4. Re-obtain cell phone numbers and consent each time a borrower takes out a new loan;
  5. Have a live person make the first call to verify that a cell number has not been re-assigned to a party that has not given consent;
  6. Maintain procedures to track revocations of consent;
  7. Do not call borrowers’ cell numbers if the numbers were not provided on the application that underlies the specific debt being collected;
  8. Make sure agreements with third-party debt collectors contain provisions related to indemnification of the lender for all damages that may result from the third party’s violation of the TCPA, and that your third-party debt collector provides you a certificate of adequate insurance; and
  9. When in doubt, use live operators and non-auto-dialers when contacting customers or collecting debts.

[1] $75M Capital One TCPA Class Deal OK’d, Bloomberg Law (Feb. 23, 2015), http://www.bna.com/75m-capital-one-n17179923290/#!.

[2] 47 U.S.C. § 227 (2012).