Here come lenders like locusts

By Bankrate.com

When you apply for a loan and your credit is checked, your name and some personal information is often sold to other lenders. Is this legal? Is it safe?


It's a surprise for many would-be buyers: On Monday you sign a loan application with the mortgage broker of your choice, and by Tuesday your phone is ringing off the hook with calls from other lenders offering you deals.

Congratulations. You've become a "trigger lead."

When you, as a potential borrower, sign a loan application, the lender or broker pulls your credit report, often getting a report that includes information from all three major credit bureaus.

The lender's request for your credit report "triggers" an alert, informing the credit bureaus that you are a "hot lead" looking to purchase a home or refinance your loan.

The credit bureaus sell these trigger leads to lenders and brokers, presenting these industry subscribers with a list of candidates who are looking for a loan and meet their ideal criteria for loan products.

Experian, for example, has a monitoring service, which lenders and brokers can subscribe to, called Prospect Triggers. Experian spokeswoman Susan Henson says the company can pull out all of the consumers that fit a lender's credit criteria from the consumer database.

"They could say they want consumers who have never claimed bankruptcy. They could say they want consumers that have two open credit cards and an auto loan," says Henson.

Henson says federal law limits the type of information provided to clients. Therefore, no specific information is delivered, only aggregated information such as the total number of bank cards a consumer has.

Credit bureaus also provide contact information, such as the applicant's name, address and telephone number, to their clients, says Stuart Pratt, the president of the Consumer Data Industry Association, which lobbies for credit bureaus.

Questionable tactics
Trigger-lead products have been around for more than a year and a half and are facing scrutiny in the mortgage industry.

Many consumers complain it's a violation of their privacy. Some bankers and mortgage brokers also oppose the practice, saying borrowers are blaming them for the flood of calls. In some states, lawmakers are acting to prohibit or regulate trigger leads. Similar legislation could come out of Congress soon.

But Pratt argues that the leads are helpful for lenders, brokers and consumers, though consumer, credit and home lending groups debate who benefits the most from this type of contact: the competitor or the consumer.

"The competition benefits the consumer," Pratt says. "I could be doing business with a subprime mortgage lender and discover that I could be with a prime lender. As a consumer, that's hundreds of dollars in your pocket."

The Federal Trade Commission also says consumers can benefit from these calls. According to the agency's consumer alert, the offers present other products that make it easier to comparison shop.

Pratt says trigger-lead products allow local brokers to compete with national brokers, which means more offers for consumers.

Uncomfortable competition
However, some of those local lenders and brokers aren't too happy having their competitors soliciting their customers.

"It's very unfair to people like me, people that are in the industry who are trying to broker loans, and then you got some back stabber who has the ability to steal our leads," says Gene Peplinski, a former loan officer in Flint, Mich.

Peplinski says one of his borrowers had just applied for a loan when the borrower received an unsolicited phone call from a mortgage lender.

"He asked if I had given his name and number to this new company. I said, 'No I don't know anything about it,' " says Peplinski. He argues that the mortgage company he worked for paid the expenses of generating a lead of a potential buyer.

As home loan rates inch up, the choice is not so clear, and much depends on how long you'll be in your house.

Pratt says the negative reaction is enhanced by the slow real-estate market.

"Some brokers are more sensitive to another competitor taking a person away," says Pratt.

Deceptive practices?
Some consumers and regulators complain that trigger leads inspire deception from lenders eager to make a deal. Complaints include consumers upset that they were led to believe the caller was associated with the company they had just applied with or they were unhappy that information provided to the original company was given to another source.

William Lund, the director of the Maine Office of Consumer Credit Regulation, says he believes the Fair Credit Reporting Act is being violated because excessive information is being provided on trigger leads and the credit offers are not firm. Instead, he says, they are "fishing expeditions" providing no benefit to the consumer.

Lund also says the National Do Not Call Registry and the pre-screening opt-out list are being ignored.

Continued: An unexpected call

Monique Wormwood of Monterville, W.Va., applied for a mortgage refinance with the mortgage company where she was employed when she lived in Naples, Maine. She quickly received an unexpected phone call.

"I answered the phone and the gentleman said, 'Hi, Mrs. Wormwood, I am following up on your loan application.' He had the attitude that he spoke to me before. I told him his conversation was a lie because I worked for their competitor," says Wormwood.

She reported the contact to the Maine Office of Consumer Credit Regulation.

State officials acquired the phone pitch from the mortgage company.

"They told me what the script was, and it was not what was told to me over the phone," says Wormwood.

Lund says calling to say "Hello, I am calling about your mortgage application" or "Information about your mortgage application has crossed my desk" is not a lie, but it is deceptive. It gives the impression that the call is related to the application filled out earlier with the original lender.

Harry Dinham, the president of the National Association of Mortgage Brokers, says he's concerned identity theft will occur.

For example, he says, someone could say, "Look, I got your information here. I have every piece of information but we just don't have the Social Security number. Give it to me again."

Consumer attorney Edward Jamison of Jamison Law Group says he believes credit bureaus could possibly be violating three antitrust laws: the Sherman Antitrust Act, Clayton Antitrust Act and the Federal Trade Commission Act. He suggests that because lenders must use all three major bureaus, the bureaus may have too much control marketing trigger lead products and could suppress healthy competition.



Identifying solutions
The National Association of Mortgage Brokers is proposing actions against the wrongful use of trigger leads.

It favors:

An initiative to stop the illegal sale of "pre-screened mortgage" trigger leads to individuals or entities because the competitors don't have all the information from the consumer to close the deal and haven't confirmed the consumer's information.

Restricting the use of pre-screened mortgage lists to written solicitations only, so consumers are educated about their right to opt out of trigger lists.

Stopping consumer reporting agencies from adding duplicative fees to the credit process. Currently, all lenders a broker sends a credit report to are charged a reissue fee from the credit repositories whether the consumer takes the loan or not. In the past, the reissue fee was charged only to the ultimate lender.

As home loan rates inch up, the choice is not so clear, and much depends on how long you'll be in your house.

Meanwhile, home buyers and refinancers can protect themselves:

Get the caller's name, the company and location, and ask for the offer in writing.

Call the Better Business Bureau and Department of Commerce to learn the company's record.

Contact the attorney general's office if it's a deceptive pitch.

Block out information by calling 1-888-5-OPTOUT (1-888-567-8688) or log on to OptOutPrescreen.com.

Reduce the telemarketing calls at home by calling 1-888-382-1222 or log on to the National Do Not Call Registry.

This article was reported and written by Brigitte Yuille for Bankrate.com.