Credit Repair Services – Cautioning the Consumer

QUESTION 

Our CEO has notified our loan officers that she will not accept any applications where credit repair has taken place. Some of our loan officers now threaten to leave the company because they view credit repair as a legitimate business. 

Maybe it is and maybe it isn’t. I am not in a position to know. But I do know that the CFPB has been very litigious against credit repair companies for all sorts of violations. And the CFPB has been getting some hefty settlements. 

We have been tasked with drafting a pamphlet to give applicants about the hazards involving credit repair. We are supposed to say that our company will not process applications if a credit repair company is used. 

Since you have written about the scams to consumers and challenges to lenders from credit repair companies, I hope you can provide a brief outline for our pamphlet. 

What should our pamphlet say about the scams and dangers of credit repair? 

ANSWER 

I think there is a tendency to take the whole credit repair industry to task because of the frauds perpetrated by several of its members, large and small. It is better to educate consumers about the risks than to tar all credit repair services with the nefarious actions of bad counselors. Many credit repair companies make a positive contribution to consumers’ financial welfare. 

Generally, credit repair organizations[i] sell, provide, or perform any service in return for the payment of money or other valuable consideration for the express (or implied) purpose of improving a consumer’s credit record, credit history, or credit rating or providing advice or assistance to a consumer with respect to any such activity or service.[ii] 

You are correct in stating that there have been substantial settlements involving credit repair companies, two of the largest being CreditRepair.com and Lexington Law. The settlement was reached in litigation with the Consumer Financial Protection Bureau (CFPB). Both companies are now bankrupt, each owned by PGX Holdings, Inc., which is reorganizing in bankruptcy.[iii] The settlement, among other things, states that the companies collected illegal advance fees for credit repair services through telemarketing in violation of federal law.[iv] 

The stipulated judgment will impose more than $64 million in civil monetary penalties and a $2.7 billion judgment for redress. Plus, it will require notices about the settlement to be sent to enrolled consumers, including information about canceling the service. Finally, for ten years, the settlement bars these companies from doing business with certain marketing affiliates and bans them from telemarketing any credit repair services or others marketed through telemarketing. 

I won’t second-guess the reasons why your CEO has decided not to take a loan application if the applicant used a credit repair company, but considering the case of CreditRepair.com and Lexington Law, and the CFPB’s far-reaching the CFPB’s examination and enforcement authorities, she may be mindful of the legal, regulatory, and operational risks. 

Providing a pamphlet about credit repair to the applicant is a good idea. It is proactive. If you offer a pamphlet but do not accept loan applications from people who use or plan to use credit repair, it would be helpful to state the company’s position in the pamphlet and appropriate disclosures. But this is not just a business decision. 

Suppose you take the application but discover that the applicant used a credit repair service, and you have a blanket policy that rejects such applications. In that case, you may need to reject the application, possibly based on an inability to verify credit eligibility. That decision would cause the issuance of Regulation B disclosure (i.e., Adverse Action), which requires you to disclose why you rejected the application. The Equal Credit Opportunity Act (ECOA)[v] and Fair Credit Reporting Act (FCRA)[vi] would likely apply. In fact, there are several moving parts, regulatory, legal, credit underwriting, and operational, to the decision not to accept applications where credit repair is used. The decision to implement a blanket policy to ban all applications where consumers have used credit repair or credit relief guidance is fraught with risk. Before implementing these plans, I suggest you discuss them with competent counsel or compliance professionals. 

However, in general, issuing a pamphlet to applicants is worthwhile. You don’t have to discourage an applicant from using credit repair services if you offer the pamphlet to warn applicants about potential scams, frauds, ripoffs, shams, deceptions, swindles, and telemarketing crimes. The warning may be enough! 

Legitimate credit repair services follow numerous federal laws, including the Credit Repair Organizations Act[vii] and, as applicable, the Telemarketing Sales Rule,[viii] both of which forbid credit repair organizations from using deceptive practices and accepting up-front fees. 

The CFPB has provided substantial guidance to consumers. Several years ago, the CFPB issued a Consumer Advisory called Don’t Be Misled By Companies Offering Paid Credit Repair Services.[ix] The Bureau also published an article on How To Avoid Credit Repair Service Scams, which is easy to adapt to a pamphlet format.[x] A fine pamphlet on credit repair fraud, entitled Consumer Pamphlet: Credit Repair Fraud, is provided as a public service for consumers by The Florida Bar.[xi] In drafting your pamphlet, consider including these publications in your review. 

It would help if you listed some caveats in the pamphlet that can assist consumers in evaluating credit counselors. A well-known resource for finding a credit counselor is the National Foundation for Credit Counseling. Contact information about it can be offered in the pamphlet.[xii] 

Whatever caveats you choose, such a list should at least include these five Red Flags:[xiii] 

1.     They demand payment upfront. 

The company wants you to pay before it provides any services. Under the Credit Repair Organizations Act, credit repair companies can’t request or receive payment until they’ve completed the services they’ve promised. Some companies will structure monthly payment plans to avoid this requirement, and you should know that no form of upfront payment is legal. 

A simple rule to follow is “Don’t pay upfront.” If the company uses telemarketing such that the Telemarketing Sales Rule applies, the company may not request or receive fees until it has provided you with a credit report generated more than six months after the promised results that shows the results. 

2.     It sounds too good to be true. 

The company tells you it can get rid of the negative credit information in your credit report in a short period, even if that information is accurate and current. Also, if they promise a specific increase in your credit score or guarantee a certain result. 

No one can guarantee this. It simply takes time to repair your credit file. 

3.     They can’t answer questions.

The company representative can’t explain the specifics of the services they are offering you or the total cost for those services. 

Asking a few simple questions can help you determine if you are dealing with a reputable organization. 

4.     They hold back or provide misinformation. 

The company doesn’t inform you of your rights, including your right to obtain a written contract outlining the details of your arrangement, as well as having the ability to cancel your contract with the company within three business days. The company does not disclose the full cost of its services, and/or the company suggests that you should not (or cannot) contact any of the nationwide credit reporting companies directly (you can). 

5.     They ask you to misrepresent information. 

The company suggests that you try to invent a “new” credit identity – resulting in a new credit report – by applying for an Employer Identification Number instead of your Social Security Number. 

 

Jonathan Foxx, Ph.D., MBA

Chairman & Managing Director

Lenders Compliance Group

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[i] See §1679a(3)(A)(i)-(ii), 15 USC Chapter 41, Subchapter II-A: Credit Repair Organizations, From Title 15: Commerce and Trade, Chapter 41—Consumer Credit Protection

[ii] Ibid. §1679a(3)(A), Credit repair organizations include entities that can or will sell, provide, or perform credit repairs.

[iii] Credit repairer PGX begins bankruptcy with $12 million loan, Knauth, Dietrich, June 6, 2023, Reuters. PGX also owns Credit.com.

[iv] CFPB Reaches Multibillion Dollar Settlement with Credit Repair Conglomerate, Press Release, August 28, 2023, Consumer Financial Protection Bureau; Bureau of Consumer Financial Protection v Progrexion Marketing, Inc.

[v] Equal Credit Opportunity Act

[vi] Fair Credit Reporting Act

[vii] 15 USC §§ 1679-1679j, FTC; Title IV of the Consumer Credit Protection Act, prohibits untrue or misleading representations and requires certain affirmative disclosures in the offering or sale of "credit repair" services. The Act bars companies offering credit repair services from demanding advance payment, requires that credit repair contracts be in writing, and gives consumers certain contract cancellation rights.

[viii] 16 CFR 310, FTC; The Telemarketing Sales Rule requires telemarketers to make specific disclosures of material information; prohibits misrepresentations; sets limits on the times telemarketers may call consumers; prohibits calls to a consumer who has asked not to be called again; and sets payment restrictions for the sale of certain goods and services.

[ix] Don’t Be Misled By Companies Offering Paid Credit Repair Services, Consumer Advisory, Consumer Financial Protection Bureau, issued September 20, 2016, updated December 3, 2019.

[x] How To Avoid Credit Repair Service Scams, Brown, Desmond, September 23, 2016, updated July 30, 2019, Blog, Consumer Financial Protection Bureau

[xi] Consumer Pamphlet: Credit Repair Fraud, The Florida Bar, updated June 2023, https://www.floridabar.org/public/consumer/tip005/. Note, the article appears to be copyrighted, so contact the organization for permission to publish it in whole or in part.   

[xii] The nonprofit National Foundation for Credit Counseling has a website at https://www.nfcc.org. Its telephone is 800-388-2227.

[xiii] Op. cit. x

Counteroffer or Adverse Action: Timing Requirements

QUESTION 

I am in the underwriting department and have a question about notifying the borrower about our decision to approve or adverse their loan. 

We provide an approval, counteroffer, or we adverse the loan. We underwriters here have a system that does not correctly differentiate the notification timing for counteroffers versus adverse action. But I believe counteroffers get additional time on notifications. 

I think this also has to do with how we define a counteroffer and adverse action. Our system works with a set of rules, and I think the rules are incorrectly defined. So, here are my questions. 

What are the notification requirements for our decision to approve, counteroffer, or adverse a loan? 

What is a “counteroffer?” 

What is “adverse action?” 

ANSWER 

Creditors are subject to specific notification requirements under the Equal Credit Opportunity Act (ECOA) in connection with credit applications, with the notice requirements varying based on the action taken by the creditor and whether the application is for consumer credit or business credit. 

Under the ECOA, there are four notification timing requirements for consumer credit. 

1.    Thirty (30) days after receiving a completed application concerning the creditor’s approval of, counteroffer to, or adverse action on the application; 

2.    Thirty (30) days after taking adverse action on an incomplete application, unless an incomplete application notice is provided under procedures specified in Regulation B, the implementing regulation of the ECOA [see section 202.9(c)]; 

3.    Thirty (3) days after taking adverse action on an existing account; or 

4.    Ninety (90) days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.[i] 

With respect to defining a “counteroffer,” it refers to when a creditor offers to grant credit in a different amount or on other terms than the amount or terms requested by the applicant.[ii] 

You might want to know that, pursuant to the ECOA, a counteroffer need not be held open for any particular length of time.[iii] 

Defining adverse action is a bit tricky, so I will provide what it means and doesn’t mean. 

What does “adverse action” mean: 

1.    A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer and the applicant uses or expressly accepts the credit offered; 

2.    A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts; or 

3.    A refusal to increase the amount of credit available to an applicant who has applied for an increase.[iv] 

What “adverse action” does not include: 

1.    A change in the terms of an account expressly agreed to by an applicant; 

2.    Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account; 

3.    A refusal or failure to authorize an account transaction at the point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account; 

4.    A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or 

5.    A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.[v] 

Finally, there is the matter of determining when a notification occurs. Notification occurs when a creditor delivers or mails a notice to the applicant’s last known address or, in the case of an oral notification, when the creditor communicates the credit decision to the applicant.[vi] 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] 12 CFR § 202.9(a)

[ii] 12 CFR § 202.2(c)(1)

[iii] 12 CFR, Supplement I to Part 202 – Official Staff Interpretations § 202.9(a)(1)-5

[iv] 12 CFR § 202.2(c)(1)

[v] 12 CFR § 202.2(c)(2)

[vi] 12 CFR, Supplement I to Part 202 – Official Staff Interpretations § 202.9-3

ECOA's Regulation B protects Existing Customers

QUESTION

We originate mortgages in 35 states, and all loan originations are retail. I am the company’s Chief Risk Officer. For years, we took the position that ECOA only applies to people who are applying for loans. We checked around and found that many banks had the same policy. Then, in 2020, we learned about a lawsuit against Bank of America, which changed our policy. 

Apparently, Bank of America argued that it could disregard ECOA when it comes to existing customers. The dispute was over them not having to issue an adverse action notice. This did not go over well with the CFPB, which contended that ignoring the ECOA for existing customers would undermine anti-discrimination protections. 

I’ve been told that the CFPB is now doing examination and enforcement audits to see if companies provide ECOA rules to applicants and existing customers. 

Can you provide some insight into Regulation B’s protection of existing customers? 

ANSWER

The case you referenced concerns the CFPB’s involvement in 2021.[i] Bank of America contended that it did not have to send an adverse action notice to an existing customer. The CFPB filed an amicus curiae (legalese for a brief filed as “friend of the court”), arguing that Bank of America’s position was contradicted by the language and history of the law. 

According to the CFPB, the Equal Credit Opportunity Act (ECOA) protections against credit discrimination do not disappear when credit is extended; instead, ECOA shields existing borrowers from discrimination in all aspects of a credit arrangement. 

You mentioned in your inquiry that my firm conducted an ECOA Tune-up® for you in 2020, and you now plan to do another one this year. We consider ECOA to be one of the primary regulations in mortgage banking. If others want information about the ECOA Tune-up®, please contact us HERE. 

Briefly put, the CFPB contended that ECOA and its implementing rule, Regulation B, include those currently seeking credit and those who sought and have now received credit. The Bureau determined that this interpretation is the best reading of the statute itself. Any doubt whether the term “applicant” includes current borrowers is put to rest by Regulation B, which has expressly defined the term to include current borrowers for decades. 

ECOA has been law since 1974. So, it is odd to have a big controversy over something like issuing an adverse action notice to existing customers. You would think that in ECOA’s nearly 50-year history, a matter such as issuing an adverse action notice would have been thoroughly vetted! 

The first thing we need to do is define what an “applicant” is. Is an applicant a person who applies for an extension of credit? That would be logical, given Webster’s definition: “a person who applied for something (as a job).” I believe Clarence Darrow once said, ‘the trouble with the law is lawyers.’ If you want to be logical about definitions, be advised, lawspeak and common parlance do not always mesh well. 

The ECOA is abundantly clear about the definition of an applicant, to wit,

 

“… any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”[ii] [Emphasized]

 

Furthermore, adverse action is codified in ECOA’s prohibition on discrimination as it applies

 

“… to all credit transactions including the approval, denial, renewal, continuation, or revocation of any open-end consumer credit account.” [Emphasized]

 

But the Federal Reserve Board (FRB), in promulgating Regulation B, left no uncertainty about whether ECOA should be applied to existing customers. It did so by defining “applicant” to expressly include not only

 

“… any person who applies to a creditor directly for an extension, renewal or continuation of credit” but also, “[w]ith respect to any creditor[,] . . . any person to whom credit is or has been extended by that creditor.”[iii] [Emphasized]

 

The FRB then locked in any attempt to skirt this provision by noting that ECOA’s express terms and its legislative history

 

“demonstrate that Congress intended to reach discrimination . . . ‘in any aspect of a credit transaction.’”[iv] [Emphasized]

 

It could be asserted that there’s a difference between a credit applicant and a debtor. That’s fair as far as it goes. But, the FRB had the last say because it revised Regulation B’s definition of “applicant” to include both those who request credit and debtors,[v]  stating that an “applicant” includes

 

“any person who requests or [who] has received an extension of credit from a creditor.”[vi] [Emphasized]

You are correct that the CFPB is conducting examinations involving Regulation B compliance, but this is not something new, and it is not happening just now. The CFPB has been examining ECOA compliance for years. Perhaps you are more aware of the Bureau’s ECOA examination activities because it recently issued an advisory opinion (“Advisory”) on ECOA compliance concerning revocations or unfavorable changes to terms of existing credit arrangements.[vii] 

With this Advisory, the CFPB affirms the established requirements to issue adverse action notices to an existing borrower. The Bureau clarifies that Regulation B protection is afforded to borrowers after they have applied for and received credit. 

Lenders may not discriminate against borrowers with existing credit. For instance, the ECOA prohibits lenders from lowering the credit limit of certain borrowers’ accounts or subjecting certain borrowers to more aggressive collections practices on a prohibited basis, such as race. 

ECOA’s private right of action points to supporting alleged discrimination from persons who have already received credit. Thus, an aggrieved “applicant” can bring suit against creditors who fail to comply with the ECOA or Regulation B. In effect, the history of the ECOA’s Regulation B and its judicial interpretation of an “applicant” cannot be understood to refer only to those with pending credit applications. If it were otherwise, a person whose application was denied on a prohibited basis would have no recourse under ECOA’s private right of action, which Congress intended would be the Act’s “chief enforcement tool.”[viii] Instead, the term “applicant” is not limited to those currently applying for credit. 

If you have been holding off from doing an ECOA Tune-up®, I encourage you to consider it now, especially since the CFPB’s Advisory regarding ECOA compliance demonstrates a heightened interest in examination and enforcement. If you want information about an ECOA Tune-up®, please contact us HERE.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director 

Lenders Compliance Group

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[i] Fralish v Bank of America, N.A., US District Court, 21-2846, 7^th Circuit, (9.29.21); Fralish v Bank of America, N.A., US Court of Appeals, 7^th Circuit (1.28.22)

[ii] Pub. L. 93-495, sec. 503, 88 Stat. at 1522 (codified at 15 U.S.C. 1691a(b))

[iii] 12 CFR 202.3(c) (1976); see also 40 FR at 49306

[iv] 40 FR at 49298 (quoting 15 U.S.C. 1691(a))

[v] 41 FR 29870, 29871 (July 20, 1976) (proposed rule)

[vi] 12 CFR 202.2(e) (1978) (emphasis added); see also 42 FR 1242, 1252 (Jan. 6, 1977) (final rule)

[vii] Equal Credit Opportunity (Regulation B); Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements, Advisory Opinion, 12 CFR Part 1002, Consumer Financial Protection Bureau, May 9, 2022

[viii] S. Rep. 94-589, at 13

Online Group’s S.A.F.E Act Violations

QUESTION
In our recent examination, the banking department cited us for S.A.F.E. Act violations. The worst offenders were in our online group. 

The way we’re set up, the online loan officers separate between those who take an application and those who just answer phones and direct the applicants to loan officers. 

It became a licensing issue based on the definition of “taking an application” and whether anyone who spoke to the applicant was licensed in the property’s state. 

Some of the things we now have to do are install a call recording service, monitor all the calls, additional training, quarterly review of all loan officer licenses, complete description of the “hand-off” procedures, and compliance with the S.A.F.E. Act’s definition of originating mortgage loans. 

The biggest problem we face is defining what the banking department calls “mortgage loan originator activities.” We want to revamp the online group, beginning with a new definition. 

What are “mortgage loan originator activities” according to the S.A.F.E. Act?

ANSWER
There are several aspects of your inquiry leading up to the question itself. I have repeatedly said that a financial institution should not go online unless it has the appropriate policies and procedures in place. It appears that your company did exactly what I have argued against doing! I understand the need to get into online sales, but it should not be at the expense of courting regulatory violations. 

If you had come to us to build an online platform, we would have had you work with our checklist and document review that guide you in establishing an online sales group. We would be interacting every step of the way until you launch the platform. 

Such requirements would include not only the items you mention but also many more features that standardize and stabilize the interaction with consumers and ensure federal and, where applicable, state banking law compliance. 

Our firm already has the policies and procedures to conform to your business model. There are several necessary policy documents. But that’s just one feature of the build. 

You need periodic call calibration. Call calibration, which we offer, is an oversight process to monitor, rate, and report on call compliance by listening to recorded calls. Ideally, this should be done by a compliance professional. 

There are numerous disclosure requirements, both oral and written. 

And the threat of being trapped in a licensing violation is real. We have worked with clients that fell into multistate licensing violations and paid millions of dollars in civil monetary penalties. When you say “hand-off procedures,” I say be careful! 

And, most important, you need to understand what constitutes “mortgage loan originator activities” as defined by the S.A.F.E. Act (“Act”),[i] whose implementing Regulation H describes specific requirements for S.A.F.E. Act-compliant state mortgage loan originator licenses and the Nationwide Mortgage Licensing System and Registry.[ii] 

To answer your question, I will treat three fundamental elements that constitute mortgage loan originator activities. The three components are (1) taking an application, (2) offering or negotiating loan terms, and (3) compensation or gain for rendering such services. 

These are not all the possible scenarios but about as comprehensive as I can provide in the space available for this article. If you want more information, please get in touch with me HERE. 

I will base my response on an appendix to the Act.[iii] This appendix is best understood as providing possible examples to aid in understanding activities that would cause an individual to fall within or outside the definition of a mortgage loan originator. Even then, they illustrate only the issue described and do not illustrate any other issues that may arise. 

Let’s begin by describing a residential mortgage loan as any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling[iv] or residential real estate upon which is constructed or intended to be constructed a dwelling.[v] 

And, broadly, a loan application is a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the borrower or prospective borrower that is customary or necessary in a decision on whether to make such an offer. I know this language seems legalistic – and I guess I can’t help myself! – but in this case, every single word counts. Read it again! 

Taking an Application 

The act of taking a residential mortgage loan application means receipt by an individual for the purpose of facilitating a decision whether to extend an offer of loan terms to a borrower or prospective borrower.[vi]

Here are some examples of taking or not taking an application. 

An individual “takes a residential mortgage loan application” even if the individual: 

·    Has received the borrower or prospective borrower’s request or information indirectly, which means an individual takes an application whether they receive it “directly or indirectly” from the borrower or prospective borrower.[vii] It also means that an individual who offers or negotiates residential mortgage loan terms for compensation or gain cannot avoid licensing requirements simply by having another person physically receive the application from the prospective borrower and then pass the application to the individual; 

·    Is not responsible for verifying information. The fact that an individual who takes application information from a borrower or prospective borrower is not responsible for verifying that information – for example, the individual is a mortgage broker who collects and sends that information to a lender – does not mean that the individual is not taking an application; 

·    Only inputs the information into an online application or other automated system; or 

·    Is not involved in the approval of the loan, including determining whether the consumer qualifies for the loan. Similar to an individual who is not responsible for verification, an individual can still “take a residential mortgage loan application” even if they are not ultimately responsible for approving the loan. For instance, a mortgage broker can take a residential mortgage loan application even though it is passed on to a lender to decide whether the borrower qualifies for the loan and the ultimate loan approval. 

An individual does not take a loan application merely because the individual performs any of the following actions: 

·    Receives a loan application through the mail and forwards it, without review, to loan approval personnel. The Bureau interpreted the term “takes a residential mortgage loan application” to exclude an individual whose only role with respect to the application is physically handling a completed application form or transmitting a completed form to a lender on behalf of a borrower or prospective borrower.[viii] 

·    Assists a borrower or prospective borrower who is filling out an application by explaining the contents of the application and where particular borrower information is to be provided on the application; 

·    Generally describes for a borrower or prospective borrower the loan application process without a discussion of particular loan products; or 

·    In response to an inquiry regarding a prequalified offer that a borrower or prospective borrower has received from a lender, collects only basic identifying information about the borrower or prospective borrower on behalf of that lender. 

Offering or Negotiating Terms of a Loan 

The following examples illustrate when an individual offers or negotiates terms of a loan[ix] and, conversely, what does not constitute an offering or negotiating terms of a loan: 

Offering or negotiating the terms of a loan includes: 

·    Presenting for consideration by a borrower or prospective borrower particular loan terms, whether verbally, in writing, or otherwise, even if:

o   Further verification of information is necessary;

o   The offer is conditional;

o   Other individuals must complete the loan process;

o   The individual lacks authority to negotiate the interest rate or other loan terms; or

o   The individual lacks the authority to bind the person that is the source of the prospective financing. 

·    Communicating directly or indirectly with a borrower or prospective borrower to reach a mutual understanding about prospective residential mortgage loan terms, including responding to a borrower or prospective borrower’s request for a different rate or different fees on a pending loan application by presenting to the borrower or prospective borrower a revised loan offer, even if a mutual understanding is not subsequently achieved. 

Offering or negotiating terms of a loan does not include any of the following activities: 

·    Providing general explanations or descriptions in response to consumer queries, such as explaining loan terminology (i.e., debt-to-income ratio) or lending policies (i.e., the loan-to-value ratio policy of the lender), or describing product-related services; 

·    Arranging the loan closing or other aspects of the loan process, including by communicating with a borrower or prospective borrower about those arrangements, provided that any communication that includes a discussion about loan terms only verifies terms already agreed to by the borrower or prospective borrower; 

·    Providing a borrower or prospective borrower with information unrelated to loan terms, such as the best days of the month for scheduling loan closings at the bank; 

·    Making an underwriting decision about whether the borrower or prospective borrower qualifies for a loan; 

·    Explaining or describing the steps that a borrower or prospective borrower would need to take to obtain a loan offer, including providing general guidance about qualifications or criteria that would need to be met that is not specific to that borrower or prospective borrower’s circumstances; 

·    Communicating on behalf of a mortgage loan originator that a written offer has been sent to a borrower or prospective borrower without providing any details of that offer; or 

·    Offering or negotiating loan terms solely through a third-party licensed loan originator, so long as the non-licensed individual does not represent to the public that they can or will perform covered activities and does not communicate with the borrower or potential borrower. 

Examples:

-    A seller who provides financing to a purchaser of a dwelling owned by that seller where the offer and negotiation of loan terms with the borrower or prospective borrower are conducted exclusively by a third-party licensed loan originator.

-    An individual who works solely for a lender, when the individual offers loan terms exclusively to third-party licensed loan originators and not to borrowers or potential borrowers. 

Compensation or Gain 

An individual acts “for compensation or gain”[x] if the individual receives or expects to receive, in connection with the individual’s activities, anything of value, including, but not limited to, payment of a salary, bonus, or commission. 

Note: The concept “anything of value” is interpreted broadly and is not limited only to payments contingent upon the closing of a loan. 

An individual does not act “for compensation or gain” if the individual acts as a volunteer without receiving or expecting to receive anything of value in connection with the individual’s activities. 

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
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[i] 12 CFR Part 1008 – S.A.F.E. Mortgage Licensing Act – State Compliance and Bureau Registration System (Regulation H)
[ii] Regulation H was issued by the Consumer Financial Protection Bureau to implement the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, title V of the Housing and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 Stat. 2654, 12 U.S.C. 5101 et seq.)
[iii] See Appendix A to Part 1008
[iv] As defined in section 103(w) of the Truth in Lending Act
[v] Ibid, as defined
[vi] See § 1008.103(c)(1)
[vii] Ibid
[viii] This interpretation is consistent with the definition of “loan originator” in section 1503(3) of the S.A.F.E. Act.
[ix] See § 1008.103(c)(2)
[x] See § 1008.103(c)(2)(ii)