Collections: Calling borrowers too much – MA regulations trip up some in industry

Article By: Ben Giumarra, Spillane Consulting Associates, Inc.

You ask, we answer.

Nobody wants to think about this: but some borrowers will need to be “reminded” to make their payment. Shocking, I know!

But some companies are getting themselves into trouble for how exactly they go about this. And Massachusetts is a good example of a state that’s actively looking to curb what it views as overly aggressive debt collection practices. Look, for example, at Ditech Financial, which paid a $1.4 million fine when it was sued by the Attorney General over its attempt to collect on 5,000 delinquent loans, sometimes calling borrowers 12 times a day.  Here’s a good Boston Globe article with more details.

So let’s go through some key points.

What rules apply to me?

In Massachusetts, there are two sets of Debt Collection requirements.

First, there are requirements put in place by the Division of Banks that apply only to “debt collection agencies.” 209 CMR 18.00. For most people reading this newsletter, don’t get distracted by these requirements – they don’t apply to “creditors” and are really more for true debt collection agencies.

Secondly, there are Attorney General regulations. 940 CMR 7.00. These will apply to most people reading this newsletter, as they apply to “creditors”, and are not limited to 3rd party debt collectors.

Attorney General Debt Collection Rules:

General Overview

So these are some- but not all- of the requirements/prohibitions in the AG regulations:

  • Cannot threaten to sell the debt to a third party that “won’t be so patient”
  • Cannot imply that non-payment of the debt will result in arrest
  • Using profanity is prohibited
  • Employee calling the debtor must identify himself by full name and/or first name with a personal identifier (that cannot be shared with other employees)
  • Cannot call outside of “normal waking hours”, which are, unless the institution should know otherwise, can be assumed to be from 8:00 am to 9:00 pm
  • Cannot confront the debtor about the debt publicly (so using Twitter to “shame” someone is a No-Go)
  • Excessive communication (not including borrower-prompted) is also prohibited

Zoom in – Excessive Communication (aka nagging?)

Let’s zoom in on the last requirement list above- which is regarding how often you can contact the consumer. I’m zooming in on this because it runs contrary to other state and Federal regulations, and represents a more conservative stance that could easily be overlooked, especially by a company operating across numerous states.

The AG regulations limit how often a company can “initiate a communication” with a consumer, including via telephone, in-person, text messaging, or audio recording. But Note: There is no limit on communications requested by the consumer, i.e. calling the consumer back doesn’t count towards the limits below. 

There are two limitations here:

  1. Cannot contact the consumer at their residence, mobile phone, or other personal telephone number more than twice in any 7-day period.
  2. Cannot contact the consumer through any other means more than twice in any 30-day period.

Ok. With the basics out of the way – the important thing to understand is how Massachusetts defines “initiate a communication.” Per Attorney General Guidance, available here,

unsuccessful attempts by a creditor to reach a debtor via telephone may not constitute initiation of communication if the creditor is truly unable to reach the debtor or to leave a message for the debtor.

So, if you attempt to contact a consumer but the consumer doesn’t answer the phone – that does not count as one of your 2 permissible attempts to contactBUT ONLY if there was no way to leave a message. So this would ONLY be permissible if the voicemail box was full or off. This is a tougher stance than other regulations that you’ll come across- which is why I focus in on it.

Of course- the AG guidance later goes on to say that, nonetheless, the AG still prohibits other communication if shown that the “natural consequence of which is to harass, oppress, or abuse the debtor.” For example, if you call a consumer but the voicemail box is full – but then you call 200 times a week. Even though you can exceed the strict “2 per week” limit, this would still be unlawful as considered an attempt to harass or abuse the consumer.

Well there you go, happy collecting!

In Other News

On My Mind …

What do you know about Iceland’s 2008-2011 economic crisis? According to Wikipedia: “Relative to the size of its economy, Iceland’s systemic banking collapse was the largest experienced by any country in economic history.” Wow! In his book Boomerang, Michael Lewis tells the story of Iceland’s collapse with fascinating detail.

So Iceland’s Gross Domestic Product, at least in 2008, was about $8.5 billion euros. Compare that to the fact that three banks held foreign debt exceeding $50 billion euros!! Michael Lewis points out that banking assets grew from “only a few billion dollars” in 2003 to over $140 billion in three and half years! When the banks collapsed, he calculates that each Icelandic citizen (including children) bore personal responsibility for $330,000. As Lewis quips, “Iceland instantly became the only nation on earth that Americans could point to and say, ‘Well, at least we didn’t do that.'”

Iceland has since recovered from the crisis- no doubt in part to its burgeoning tourist industry. The government took over some of the largest banks (banks had only been deregulated in Iceland, by the way, in 2001).

“It takes discipline to focus only on high-value targets instead of giving in to the temptation of the low-hanging fruit life serves up daily.”  

– Mark Divine, The Way of the Seal: Think like an Elite Warrior to Lead and Succeed 


Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.

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