Pub. 10 2020 Issue 1

14 www.azbankers.org Loose Lips Sink Ships: Are You Ready for a Downturn? By Richard Herold, Spencer Fane LLP T HE ECONOMIC WIZARDS SAY A DOWNTURN IS COMING IN LATE 2020 or beyond — perhaps at the next confluence of geopolitical strife, pandemic risk, waning confidence or spiking interest rates. Are you ready to meet the challenges and limit the bank's risks? You've known the borrower for 20 years, attended her wedding, brainstormed her business challenges, hiked with her, lunched with her, and attended her kids' birthday parties. You're close, and surely you've made some soft statements by email, in person or by phone intended to be reassuring and supportive, but not binding on the bank. What are your risks, and how can you limit them? A Clear Trend: More and More Recorded Phone Calls First, oral statements can, of course, be very problematic for a bank. It's important to realize that borrowers, guarantors, and others are recording phone conversations. Arizona law allows just one party to the phone call to record the conversation, and with increasing frequency, these conversations are being transcribed by borrowers' counsel and utilized in depositions of bankers, in opposition to summary judgment motions filed by banks, and/or at trial. This can pose huge challenges as one banker's attempted commitment to pro- fessionalism and decency in the collection process may sound like a promise or even an attempt to mislead to a judge or jury reviewing the facts years later. Arizona's Electronic Transaction Ac t Second, even emails can substantially increase the bank's risk in light of Arizona's Electronic Transactions Act, which recognizes an electronic signature as binding if "unique to the person using it," among other requirements. Emails that contain the material terms of an agreement that are signed with electronic signatures have been held enforceable (and sufficient under the Statute of Frauds) by other