#11 Mortgage Fair & Equal Credit & Lending Laws
Names and/or contact numbers for consumer credit counseling agencies.
Are not included in an ECOA adverse action notice. An ECOA adverse action notice must contain a statement of the action taken, a statement of the provisions known commonly as the ECOA Notice, the name and address of the federal agency that administers compliance with respect to the loan originator; and the applicant's right to a statement of specific reasons for the action and the identity of the persons or office from which the statement may be obtained, if it has not been provided already.
Disclosure
No later than the third business day after receipt of an application for credit to be secured by a first lien on a dwelling, the creditor must mail or provide a notice of the applicant's right to receive a copy of all written appraisals developed in connection with the application. Disclosure
Theft Prevention Program (the Program) will:
- identify patterns, practices and specific forms of activity that are "red flags" signaling possible identity theft. - detect and respond appropriately to red flags in order to prevent and mitigate identity theft. - be updated periodically to reflect changes in risks from identity theft.
In order for the government to be able to monitor compliance with fair lending laws, as required by the Home Mortgage Disclosure Act, an application for credit primarily for the purchase or refinancing of a principal residence that will secure the loan can ask applicants for information about their:
- marital status (using the categories "married," "unmarried" and "separated"). - age. - ethnicity ("Hispanic or Latino" or "not Hispanic or Latino"). - race (using one or more categories of "American Indian or Alaska Native," "Asian," "Native Hawaiian or Other Pacific Islander," "Black or African American," and "White"). - sex (male or female).
FTC Red Flags Rule - Appropriate responses to red flags include:
- monitoring a covered account for evidence of identity theft. - contacting the customer. - changing any passwords, security codes or other security devices that permit access to a covered account. - reopening an existing account with a new account number, closing an existing account or not opening a new account. - not attempting to collect on a covered account or not selling a covered account to a debt collector. - notifying law enforcement. - determining that no response is warranted under the particular circumstances.
A creditor cannot discriminate against an applicant in any aspect of a credit transaction:
- on the basis of race, color, religion, national origin, sex, marital status or age (provided he is of age to enter into a contract). - because all or part of his income derives from a public assistance program. - because he has in good faith exercised any right under the Consumer Credit Protection Act.
The purpose of the Fair Credit Reporting Act (FCRA) and Regulation V is to:
- regulate agencies that provide consumer reports. - ensure the fairness, accuracy, timeliness and privacy of the information used in a consumer report; -employment purposes; or any other purpose authorized under section 604 [§ 1681b]. - impose disclosure requirements on persons who use consumer reports.
Rules created to implement FACTA now require that the creditor originating a loan must provide a consumer with a risk-based pricing notice if the creditor:
- uses a consumer report in connection with an extension of credit for personal, family or household purposes; and - based on the report, extends credit to the consumer on material terms (e.g., the annual percentage rate) that are less favorable than the most favorable terms available to a substantial proportion of consumers.
An applicant has the right to receive:
- within 30 days of the creditor's receipt of an incomplete application, notice of incompleteness with a reasonable time to respond. - within 30 days after receipt of a completed credit application, notice of action taken (i.e., acceptance or adverse action).
To prevent discrimination against persons because of their sex or marital status, a loan originator cannot: 1
1 - ask if an applicant is single, divorced or widowed; but may ask if the applicant is married, unmarried, or separated. - The originator may ask marital status if the loan will be secured by property (such as a mortgage loan). request information of an applicant about a spouse or former spouse who is not a co-applicant; allowed to use the account; or relied on for income, alimony or child support, unless they reside in a community property state. - ask whether an applicant receives alimony, child support or separate maintenance payments not needed in order to get credit, unless he is first told that he does not have to provide this information. (If regular alimony, child support or separate maintenance payments need to be counted as income to qualify for credit, an applicant may be asked to prove it has been received consistently.)
The following are categories of Red Flags: 4
4 - Alerts, notifications or other warnings received from consumer reporting agencies or service providers - The presentation of suspicious documents - The presentation sf suspicious personal identifying information (an address that does match)
Who is responsible for ensuring that, when reporting a consumer's credit standing and reputation, the consumer's right to privacy is protected?
Consumer reporting agency A consumer reporting agency is responsible for ensuring that the reporting of a consumer's credit standing and reputation protects his right to privacy. It may not supply information about a consumer to his employer or a prospective employer without the consumer's consent. Only people with a legitimate business need as recognized by the FCRA can get a copy of a consumer's report.
KEY PROVISIONS,
FACTA requires the three major credit reporting agencies to allow consumers to obtain a free copy of their own credit report every 12 months.
Notice of Discrepancy in Address
If a request for a credit report has an address for the consumer that is substantially different from the addresses in the consumer's file, the consumer reporting agency must notify the loan originator of the discrepancy.
The Equal Credit Opportunity Act (ECOA) was enacted in 1974,
Its goal is to ensure that all persons, consumers as well as businesses, are given an equal chance to obtain credit.
The Fair Credit Reporting Act defines companies that gather and evaluate consumer credit records as
consumer reporting agencies. In the Fair Credit Reporting Act, the organizations that assemble and evaluate consumer credit are called consumer reporting agencies.
Adverse action is defined in the law as any of the following:
- A denial or revocation of credit - A change in the terms of an existing credit arrangement - A refusal to grant credit in substantially the amount or on substantially the terms requested
Negative Information: A CRA can report negative information up to seven years, subject to the following exceptions:
- Information about a lawsuit or an unpaid judgment against the consumer can be reported for seven years or until the statute of limitations runs out, whichever is longer. - Bankruptcy information may be reported for 10 years.
For 25 months (12 months for business credit) after notifying an applicant of action taken on an application or of incompleteness, a lender or mortgage broker must retain the following:
- The original application or a copy of it - Information obtained to monitor compliance - Any other written or recorded information used in evaluating the application and not returned to the applicant at his request - Any notification of action taken or statement of specific reasons for adverse action - Any written statement from the applicant alleging a violation of ECOA
There is no time limit on reporting information:
- about criminal convictions; - in response to an application for a job with a salary of more than $75,000; or - in response to an application for more than $150,000 worth of credit or life insurance.
Under the rule, businesses are required to take reasonable and appropriate measures to dispose of sensitive information derived from consumer reports and records to protect against "unauthorized access to or use of the information." Such measures might include:
- burning, pulverizing or shredding papers containing the information. - destroying or erasing electronic files or media containing the information. - conducting due diligence prior to hiring a document-destruction contractor to dispose of the information.
Fair and Accurate Credit Transactions Act (FACTA)
- established uniform standards for credit reporting and beefed up consumer protections against IDENTITY THEFT.
The loan originator is not required to:
- explain the information in relation to the credit score. - disclose any information other than a credit score or key factors. - disclose any credit score or related information obtained by the user after a loan has closed. - provide more than one disclosure per loan transaction. - provide the disclosure when another person has made the disclosure to the consumer for a particular loan transaction.
To prevent discrimination against persons because of their sex or marital status, a loan originator cannot: 2 CONTINUE
2 - inquire about the applicant's age or whether his income derives from any public assistance program in order to determine the amount and probable continuance of income levels, credit history or other pertinent elements of creditworthiness.
The Equal Credit Opportunity Act requires that a creditor retain a loan application form for how many months?
25 months A creditor must retain the original or a copy of any application received and all related information about the application for 25 months (12 months for business credit) after notifying an applicant of action taken on the application or of incompleteness.
An adverse action notice contains: 3
3 - a statement of the action taken. - an ECOA Notice - the name and address of the federal agency that administers compliance with respect to the loan originator. - a statement of the specific reasons for the adverse action or a disclosure of the applicant's right to be given such a statement and the identity of the persons or office from which the statement may be obtained: - within 30 days after the creditor's receipt of an applicant's request; and - if the request is made within 60 days after the notification.
The Equal Credit Opportunity Act requires that an applicant be informed about action taken on his completed loan application within how many days of its filing?
30 days An applicant has a right to know whether his application was accepted or rejected within 30 days of filing a complete application.
Red Flags continue: 5
5 - Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer - A covered account is used in a manner that is not consistent with established patterns of activity on the account (e.g., a nonpayment when there is no history of late or missed payments, or a material increase in the use of available credit) - Notification is received that the customer is not receiving paper account statements or that there have been unauthorized transactions on a covered account
Consumer Reports
A Consumer Report is any written, oral or other communication of any information by a Credit Report Agency
Reimbursement
A creditor cannot charge an applicant for providing an appraisal or other written valuation, but may require applicants to pay a reasonable fee to reimburse the cost of the appraisal or other written valuation. Reimbursement
The Fair Credit Reporting Act provides which of the following with regard to information provided to consumer reporting agencies?
A person who provides information that is later in dispute has a duty to investigate it. Both the CRA and the information provider have responsibilities for correcting inaccurate or incomplete information in a consumer report. Upon receipt of the notice of dispute from the CRA, the information provider must investigate; review all relevant information provided by the CRA; report the results to the CRA; and if the disputed information is inaccurate, notify all nationwide CRAs so that they can correct this information in the consumer's file.
Examples for the reasons given for an adverse action must be specific.
ACCEPTABLE: "Their income was below what is required for the credit requested." "They haven't been employed long enough." "Their credit report indicates defaulted payments to several creditors." UNACCETABLE: "They didn't meet our minimum standards." "They didn't receive enough points on our credit-scoring system."
FTC Red Flags Rule
Also included in the implementation of FACTA, the FTC and the federal financial institution regulatory agencies have published the Red Flags Rule.
FTC Disposal Rule
In an effort to protect the privacy of consumer information and reduce the risk of fraud and identity theft, in the implementation of FACTA, the FTC has created and enforces a Disposal Rule.
Withdrawn, Denied, or Incomplete Applications
The requirement to provide an appraisal or other written valuation must be met whether credit is extended or denied, or if the application is incomplete or withdrawn.
Account management inquiries are inquiries from
creditors with whom a borrower has an existing account and to whom he has granted the authorization to make periodic inquiries. Because the MORE inquiries a consumer has to his credit report the less favorable he looks to a creditor, these inquiries are omitted from the business version to avoid penalizing the consumer for inquiries he did not initiate or request.
The purpose of the Fair Credit Reporting Act is to
ensure the accuracy of information in consumer reports. The Fair Credit Reporting Act (FCRA), enforced by the Consumer Financial Protection Bureau, is designed to ensure the accuracy and privacy of the information in consumer reports.
Promotional inquiries are from vendors who
examine a credit bureau's database based on a set of parameters and receive mailing address information for individuals matching their criteria. These vendors are not viewing a report but obtaining a list of individuals to whom they wish to offer either credit or insurance services.
Red Flag rule requires
financial institutions (including mortgage lenders) and creditors that hold any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program.
FCRA establishes processes by which a consumer may request, by phone or in writing, that CRAs not distribute his name on lists used by creditors and insurers to make unsolicited offers. Phone requests last for
five years; written requests are permanent.
Upon receipt of this notice, the originator
has some responsibility to validate the loan applicant's identity in order to form a reasonable belief that the applicant is actually the person to whom the consumer report pertains.
To help ward off identity theft, retailers are required to
hide credit card and debit card information on customer receipts. Only the last five digits of a card number can be listed. All cash registers and point-of-sale terminals must print these safeguarded receipts.
An applicant's creditworthiness, including his credit history, debt-to-income ratio and expense-to-income ratio, can be considered
if the credit evaluation criteria used meet a validity test, showing that there is a demonstrable relationship between the criteria and an applicant's level of creditworthiness.
Upon request, the CRA must disclose to the consumer everything in his report, including
medical information and, in most cases, the sources of the information, and must provide a list of everyone who requested his report within the past year (or two years for employment-related requests).
A creditor is required to provide an applicant a copy of all appraisals and other written valuations credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or
other written valuation must be provided the earlier of: - promptly upon completion; or - 3 business days prior to consummation of the transaction for closed-end credit, or account opening for open-end credit.
FACTA also creates uniform credit standards that
set clear rules on what the credit agencies can include in consumer credit reports.
While the FCRA had previously been enforced by the FTC, effective July 21, 2011,
the CFPB took over its enforcement and associated rulemaking authority.
the Federal Trade Commission (FTC) enforced the law. As of July 21, 2011,
the Consumer Financial Protection Bureau (CFPB) assumed the enforcement and rulemaking authority over ECOA.
