As residential real estate blazed red-hot in recent years, and the bar for acceptable credit continued to drop, bankers were delighted to find more and more customers walking through their doors in search of mortgages.
And in all likelihood, after a quick sit-down, the banker would say everything looked good, provided their credit looked okay.
But in the simple step of running a credit check, some bankers say, lies a problem that arose only a year or two ago, when mortgages were being handed out as quickly as the applications could be processed.
It’s not that customers’ credit wasn’t good enough. It’s that their personal information had been sold to other lenders hoping to poach business.
Hold On…
As a result, in follow-up calls to customers after credit checks, bankers and mortgage brokers would find that things were not so close to being finalized as they thought. Some customers had received offers for better rates, either in the mail or over the phone. Some complained that the bank had been selling their private information to third-party advertisers, even though that wasn’t the case. Other customers had received calls from what turned out to be other lenders impersonating the bank.
That is the ugly end of the “trigger leads” phenomenon that grew during the house-buying boom. In it, credit bureaus sell the names and application information of individuals who are seeking mortgages to other lenders, who then call or mail those customers within days to offer a better rate.
There is also trickery and crime: pretending to be the customer’s bank, offering faulty rates or gathering personal information and stealing identities.
So when the General Assembly opened for business in January, the local banking lobby lined up to try to get trigger leads banned.
What they got is a new law that categorizes more nefarious practices “unfair or deceptive” under federal law, but which the credit bureaus call model legislation for their business across the country.
Poached Tomatoes
Rockville Bank President William J. McGurk has compared the experience to growing tomatoes all summer only to have them snatched away when they ripen.
A few years ago, just before the advent of triggers, McGurk assigned a bank employee to call customers who began with Rockville Bank mortgages but re-financed elsewhere.
“We just wanted to know why customers left us,” he said.
The bank began tracking the results in monthly reports, and the triggers practice began to unveil itself, particularly among customers whose only business with the bank was a mortgage.
McGurk is not alone in his view of triggers as unfair. The furor was loud enough in Minnesota that the state legislature there banned credit reporting agencies from releasing customers’ information altogether, as part of a package of identity theft protections. The new law takes effect Aug. 1.
Other states, including Massachusetts and Wisconsin, have considered similar legislation.
Connecticut’s General Assembly began down that path, but rather than regulate credit bureaus, opted to target the more dishonest veins of the new practice by requiring trigger users to clearly explain that they are not affiliated with the initial lenders and that customers’ information was purchased from a credit bureau (not the initial lender). It also reaffirms rules of the federal Fair Credit Reporting Act, which prevents calls to those on the “Do-Not-Call” list, and it sets up a state task force to study the issue. The Connecticut law goes into effect Oct. 1.
Model Law
But the credit bureaus, as it turns out, couldn’t be happier.
“Connecticut has passed a very positive statute,” said Stuart Pratt, president of the Washington, D.C.-based Consumer Data Industry Association. The CDIA represents 300 American credit reporting agencies, mortgage reporting companies and other financial services and real estate firms.
Pratt sees the Connecticut statute as a way of cleaning up a legitimate industry. He believes the new law — along with the tightening of the mortgage business — will weed out the brokers that lack sound risk-management and customer service practices.
“I think what we’re seeing in the mortgage business is a thinning of the herd,” Pratt said. In the future, he believes, “you really have to be an effective small business owner” to succeed.
“I think some of these businesses that are effective will grow in the marketplace,” he added.
Connecticut, he said, has become a model in how to handle the burgeoning industry.
“We will continue to use the language in the Connecticut law as a model for other states,” he said.
Ultimately, the debate pits the benefits of a free market against those of privacy. Pratt called the Minnesota law, for instance, “a form of paternalism that its citizens won’t appreciate.”
But McGurk called Connecticut’s new law “shortsighted.”
“I’m quite disappointed. It seems like someone is doing all the work and then someone else skims the cream off the top.”
