FCC Limits Student Loan, Mortgage Robocalls

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By Lydia Beyoud

Aug. 11 — The Federal Communications Commission added to the patchwork of rules and regulations governing how companies can seek to collect on student loans, mortgages and other debts owed to the federal government in rules released Aug. 11.

Approved on a 3-2 partyline vote with one Democratic commissioner concurring, the report and order raised concerns among multiple commissioners over what Democrat Jessica Rosenworcel termed the “legal calisthenics” used to square it with other FCC provisions adopted in July exempting federal contractors from penalties under the Telephone Consumer Protection Act (TCPA) of 1991.

The rule allows companies such as Navient Corp. and NelNet Inc., that both work with the U.S. Department of Education, to make up to three automated robocalls or robotexts a month to borrowers “solely to collect a debt” and only for loans that are in or about to go into delinquency. The rules put a number of other restrictions in place: automated calls can only be made to the borrower and not to any other contacts with certain narrow exceptions, may only be placed between the hours of 8 a.m. and 9 p.m., and callers are allowed only one call or text to a reassigned wireless number before triggering potential penalties.

Unwanted calls and texts are the top consumer complaint to the FCC, but debt collection companies and their legal representatives have said the rate of multi-million dollar class action lawsuit penalties and settlements under the TCPA have been on the rise for years.

While FCC Chairman Tom Wheeler said in a statement that the rules were intended to balance the legitimate need for debt collectors to contact borrowers to service their loans, the regulations seem to fall in favor of allowing consumers the ability to revoke consent to be contacted and to restrict the frequency with which they may be contacted about their loans. The FCC's robocall limits were hailed by Senators Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.) Aug. 11 as a win for consumers. Both lawmakers opposed the provision being added to the Bipartisan Budget Act.

The rules may reduce the number of class actions the plaintiff's bar brings related to federally-issued or backed loans, Marc Roth, partner and co-chair of Manatt, Phelps & Phillips, LLP's TCPA compliance and class-action defense group in New York, told Bloomberg BNA.

However, Roth questioned the need for the exemption at all, saying that debt collectors already had consumers' prior consent to receive robocalls under the FCC's definition that the provision of a phone number on a loan application form constitutes prior consent.

The greater change under the exemption is for debt collectors to use “skip tracing,” or the process of obtaining a borrower's undisclosed phone number through a third party service, to make a covered robocall or robotext, he said. “That, to me, is a sea change,” Roth said. “In no other event under the TCPA can you call someone on a cell phone using a number not provided by the consumer,” he said.

Appeal Effort Likely

Debt collectors are likely to appeal the regulations to a federal circuit court, one telecommunications attorney told Bloomberg BNA on background, because the attorney represents debt collection companies in class action litigation. The three call limit is particularly vulnerable on appeal, the attorney said, because it largely nullifies a debt collector's ability to recover a delinquent debt.

The National Council of Higher Education Resources, a trade group representing student loan services, previously told the FCC it took more than 40 attempts for Navient, a member company, to reach a live person about a loan (21 ECLR 973, 6/15/16).

Large amounts of money are involved. The federal government has extended loans totalling $1.3 trillion as of fiscal year 2015, $162.1 billion of which was delinquent as of fiscal year 2015, according to Treasury Department data. The FCC's exemption could have the effect of devaluing those loans when the federal government seeks to sell them to a private entity, because the TCPA exemption will not transfer to the private party, the attorney said.

The FCC was required to craft the exemption after Congress added a provision to the 2015 Bipartisan Budget Act to specifically shield the federal government and its agents from TCPA penalties. That action came just months after the FCC took action in July 2015 to tighten the provisions of the TCPA. The commission's two Republican members said the move rendered nearly any telecommunications device a robocall device and increased the potential for large penalties.

Though they viewed the impact of the rules through different political lenses, Democrat Rosenworcel and Republican Commissioners Michael O'Rielly and Ajit Pai each questioned how the exemption fit with the Broadnet declaratory rulings the FCC issued July 6, which granted TCPA protections to federal contractors generally, beyond the scope of debt collection (21 ECLR 27, 7/13/16). Rosenworcel said the exemption may end up increasing the number of unwanted calls consumers must deal with, while Pai and O'Rielly said the overall TCPA regime was overly restrictive.

“[I]t is beyond disappointing that the order decides that the federal government and its contractors will face more restrictions when making calls to collect debts than for any other type of call they make,” O'Rielly said.

He added that the Budget Act had specifically expanded the TCPA to broadly encompass robocalls for the purpose of collecting a debt owed or guaranteed by the federal government—thus making the FCC's regulations arbitrary and capricious.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

Text of the rules and commissioners' statements is at http://src.bna.com/hFC.

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