QUESTION
We are
a mortgage lender with offices in 22 states. As the company’s CEO, I meet
regularly with our compliance staff. A few weeks ago, we were sued by some
borrowers alleging that our loan officers and processors had misled them in
loan products and processes.
I was shocked since we are very much on top of training our employees to be as transparent as possible. Our lawyer said that this kind of lawsuit happens all the time, and there are lawyers who are known for bringing these kinds of cases.
Whatever the case, we’re now stuck in litigation, and I am concerned about a big hit to our reputation. I wonder if you could give us some guidance on ensuring that our employees know how to conduct themselves. I am looking for a brief outline that I can send to our employees.
What should be our policy to ensure transparency with our customers?
ANSWER
Your counsel is correct. There are
lawyers whose principal source of business consists of scouring for cases such
as you describe. An old friend of mine is one of those guys, and he’s one of
many who make a living at the class action bar. He is doing a good thing as he
sees it since he believes his clients are allegedly injured by companies that
do not comply with banking law. I supposed that’s fine as far as it goes. But I
also know lawyers who bring long-shot, convoluted cases that generate fees but
eventually crash and burn.
However, the lack of transparency in lending can get a financial institution into significant violations of UDAAP (viz., Unfair, Deceptive, or Abusive Acts or Practices). UDAAP is very broad and filled with legal traps. It is easy to get into trouble if you don’t watch out! Many a lender has been on the receiving end of lawsuits claiming that their employees did not accurately represent their loan products and lending processes.
Let me offer these two primary rules to your employees:
1. Do not create unreasonable expectations!
2. And if you give reasonable expectations, better be sure you meet them!
That means you don’t promise a loan approval, even if the customer's creditworthiness is the best you’ve ever seen. You don’t promise a credit decision by a specified date unless, as an organization, you have implemented a standard to guarantee such a result. Don’t answer a question unless you are sure of the correct answer. Don’t answer a question for which your company does not have expertise.
And, whatever you say and do, say only what you know and do only what you are capable of doing!
Be sure your company has standardized policies and procedures, and drill them into the employees at every sales meeting and operational venue. Use the policies and procedures as a training tool.
Here are some steps you can take to reduce the potential of lawsuits claiming violations of unfair and deceptive practices. Of course, it is not meant to be comprehensive, but you can get it on one page and distribute it to all affected personnel.
1. Ask for all required documentation as soon as possible in the application process. Be clear about the information the applicant must provide. This will help avoid surprises and delays in the process. Many lawsuits arise because customers think someone else is supposed to do something, when the lender actually expected them to do it, and instead no one did anything.
2. Avoid side oral agreements. Don’t promise to do anything beyond your business focus. For instance, don’t recommend a building contractor or promise “you’ll be approved, no problem.”
3. If an application presents unusual issues or an exception to normal lending policy, mention the issue or exception to the applicants. Lead them to expect less than smooth sailing.
4. If you learn of problems with an application, notify the applicant as soon as possible.
5. Never answer an inquiry about a customer’s credit record, except in accordance with policy. If you respond, it must be truthful and complete.
6. Memos to the file must be factual and concise. Don’t allow your emotional response to affect their content. Write them as if a pro-borrower jury will view them.
7. If you have been handling a loan transaction and will be going away on vacation or unavailable for other reasons, summarize the status of pending requirements in a memo.
8. Never discuss any information provided by the applicant with any individual other than the applicant unless the applicant has given you written consent to do so.