Month: February 2017

The UCC And Mortgages

Did you know that the Uniform Commercial Code applies to mortgages? For example, did you know that the Note, or promissory note, may or may not be governed under Article 3 as a “negotiable instrument” depending on how the Note is worded? Or that the mortgage is just a form of a security interest under Article 9, and does not actually create the debt but just gives the lender a security interest in the real estate? (The Note creates the debt, by the way.) In fact, as far as I can tell, “mortgage” is only defined in the Massachusetts statutes in the UCC chapter, in Article 9. M.G.L., ch. 106, sec. 9-102(55): “(55) ”Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.” (https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Chapter106/Article9/Section9-102).

I think the fact that the UCC rules are always in the background often doesn’t get a lot of recognition or respect in mortgage lending, probably because mortgage lending has been given so many of its own specific laws and regulations which override the UCC’s general rules. But the UCC still has a very important role in mortgage lending, often without individuals making the loans realizing it.

You especially see this with fixtures. Fixtures blur the line between real property and goods, so the rules about them can be tricky when seeing how they stand next to mortgages. To make it worse, whether or not something is a fixture is not an easy question to answer. For example, a 45,000 pound machine bolted in place and connected to a power line has been considered not a fixture by one court (In re Park Corrugated Box Corp., 249 F. Supp. 56, 58-59 (D.N.J. 1966)), while a mobile home was considered a fixture in another court (George v. Commercial Credit Corp., 440 F.2d 551, 554 (7th Cir. 1971)). The best a creditor can do is try to make an educated guess about whether something would be a fixture, and protect themselves as much as they can either way.

Anyway, the point is that it’s often overlooked that among all the other rules in play regarding mortgages and lending, ECOA, HMDA, TILA, RESPA, and everything else, the UCC rules are also lurking in the background, subtly guiding and informing how lenders lend.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2772
781-356-2837 (fax)
www.scapartnering.com

Understanding Call Recording Compliance

An NSCCA member submitted a question on call recording to be researched and answered by Spillane Consulting for this blog. (That’s what we’re here for!)

This member is about to start recording phone calls between consumers and the collections department. They had a specific question related to one of the compliance requirements, which we WILL get into. But first a background on this issue for everyone else.

In General: Pros and Cons of Call Recording

For companies trying to prove compliance and to monitor customer service levels, call recording is an enticing option. It can be useful in defending against a lawsuit or regulatory action (or on the offensive in a bankruptcy or foreclosure proceeding).

Of course, the sword is double-edged … call recordings can be used against you. Sometimes call recording makes it harder to make contact with a consumer because of the disclosure sometime required to begin the conversation, i.e. “Hello, this call may be recorded … *click.”

Compliance Issue: Massachusetts Wiretap Law

If your bank decides call recording is a great idea, make sure to comply with the Massachusetts law against secretly recording conversations. This Massachusetts law is stricter than most states. In most states, a company can record conversations with consumers without consent (there is a Federal law against secret recordings, but it only prohibits a 3rd party secretly recording another conversation). But some states, like California and Massachusetts, a stricter rule applies that requires both parties’ consent. MA Chapter 272, Section 99. These “two-party” or “dual consent” states prohibit call recording of any private conversation without both parties consenting to the recording. In these states, a bank that wants to record conversations with consumers must disclose the recording at the beginning of the call.

The two-party consent rule recently made headlines in California. Wells Fargo was fined $8.5 million for failing to disclose that calls were recorded. There’s a similar judgment against Houzz.com.  And sports fans might remember the recording of Donald Sterling’s racist remarks that led to his downfall as owner of the Los Angeles Clippers.

Specific Question of the Day

So far doesn’t sound too difficult, right? Just inform consumers up front that the call will be recorded. Well one NSCCA member is struggling with whether this is strictly required with every single person spoken to, as sometimes a single call will require speaking to multiple persons before getting to the actual consumer.  So do we need to give this disclosure to absolutely every person who answers the phone? Sometimes our callers get routed from person to person, secretary to administrator, department to department, before being able to speak to the actual person they’re trying to contact in the first place. Do we need to repeat “This call may be recorded” every single time?

Receptionist: Hello, this is Smith Paper Company.
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, may I speak to Jane Consumer?
Receptionist: I think Jane is downstairs in shipping, let me transfer you.
Shipping Department:  Hello?
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, am I speaking with Jane Consumer?
Shipping Department: No, sorry. Jane is in her office, let me transfer you.
Jane’s Office: Hello?
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, am I speaking with Jane Consumer?
Jane’s Office: No, sorry. I’m Jane’s executive assistant. Jane’s off today, would you like to leave a message?

And on it goes …. You see the annoyance? Wouldn’t it make more sense just to wait and give the disclosure to Jane Consumer after confirming she was on the phone?

Specific Answer of the Day

In short, Yes, the disclosure should be given to every person. But good news, it can be preceded by an introductory greeting. Like this: “Hi, my name is Jim from ABC Bank. This call is being recorded. May I speak to Jane Consumer”?

Now, some companies may choose to push the boundaries and delay disclosure until confirming the identity of the consumer. That, of course, would be even better.  But we do not recommend this and I’ll explain why below.

“Introductory Greeting” Exception.

Instead of starting every single call off with a robotic “This call is being recorded.” disclosure, best practice is to permit an introductory greeting followed immediately by the disclosure. The wiretap law prohibits recording a conversation. Is it a conversation before the other party even gets a chance to respond? The law doesn’t allow this expressly, but the California consent order against Wells Fargo makes this clear (and there’s no reason to think the same interpretation would not be adopted here):

“Wells Fargo … shall make a clear, conspicuous, and accurate disclosure (the ‘Recorded Call Disclosure’) to any such consumer of the fact of recording, and to make such disclosure immediately at the beginning of any such communication. The  Recorded Call Disclosure may be preceded by an introductory greeting that identifies the caller and entity on whose behalf the call is being made.

So this will help call recorders a little. Remember the disclosure is still given before the other party has a chance to respond. But can we go even further and delay giving the disclosure until confirming that we’re speaking to the correct person.

Disclosure Only to Right Person

In the example above with Jim, the receptionist, the shipping department, the secretary, and Jane, can Jim avoid telling everyone that the call was being recorded except for Jane? Is it permissible for him to wait and only Jane that the call is being recorded?

Some institutions are acting as if this is the case. Maybe, under these specific facts, this is a legitimate risk-based decision. After all, why on earth would these people complain or consider a lawsuit against ABC Bank? They had meaningless conversations of under 5 seconds.

While I understand the logic, I do not recommend this approach. The problem is that you do not know in advance when you’re speaking to the consumer. Therefore, if you delay the disclosure until confirming identity, there will be many cases where substantive pieces of conversation are spoken before the disclosure occurs. Imagine these scenarios where the consumer could reveal something significant before the disclosure was given:

Bank: Hello this is Jim from ABC Bank. May I speak to Jane Consumer?
Jane: Stop calling me at work, I’m not paying your stupid car loan!
Bank: Hello, this is Jim from ABC Bank. May I speak to Jane Consumer?
Jane: (pretending to be someone else) Nooo, I’m sorry you have the wrong number. Please don’t call here again.

So here you have two conversations that you might very want to use later with your defense against a complaint or in a collection proceeding. But you have two upset consumers. And, worse yet, you have two consumers with legitimate arguments that ABC Bank violated the Massachusetts law against secret recording.

So, to avoid complications like this, we recommend giving the disclosure up-front (after an introductory greeting) with every person spoken to.

Final Note:  I realize a simple fix would be for the call recording software to be turned on only after the disclosure is given. While I suppose that might lead to other problems (employees forgetting to turn on, for example), in any case it doesn’t appear that most technological solutions available offer this option.

 And that’s all, folks. Thanks for submitting the question to us for research!

Ben Giumarra, Esquire
Director of Regulatory Affairs
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
www.scapartnering.com