Ethics when Consumer Credit is Involved

Written By: Stacey Sprain

Appraiser regulations keep evolving, RESPA keeps reinventing itself, loan officer compensation is bringing forth major changes, FACTA has added what I consider to be ridiculous new disclosure requirements nobody really seems to fully grasp, licensing requirements continue expanding and evolving, credit rules continue to tighten, … when does it all end? Unfortunately for all of us, it doesn’t appear there’s an end in sight any time soon. I’ve always enjoyed working in our industry because it never gets boring and isn’t that the truth at times like these?!

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We all know what got us here. Sub-prime loans, credit guidelines that were too lax, blah blah blah. I think we can all agree that changes were necessary in order to weed out more misrepresentation, fraud, unqualified borrowers etc. But there’s one trend that I haven’t seen the feds crack down on that continues to bother me. It’s all these credit repair places springing up all over the place. I get marketing calls from these places a couple times a month and to be honest, I don’t care to give most of them the time of day. I’m not an advocate, not a fan of these joints.

Now don’t get me wrong- I am all for credit-related education and always have been. I think it should be taught in school because it’s one of the most important pieces of education a person can actually use throughout their lifetime. And I can’t say for fact I am flat out against all of these credit repair shops- I’m sure there are some legitimate businesses that really do have the consumer’s best interest at heart; who strive to actually help borrowers gain a better understanding of how credit works so that they maintain that understanding throughout their time after walking away from the credit repair business. What I don’t approve of is when loan officers or lending institutions receive borrowers with unsatisfactory credit, send the borrowers across the street to the credit repair place to make a deal work with a closing the next week or same month. Then there are the loan officers, lending institutions, builders, realtors and other interested parties who refer borrowers to these websites where they can build their credit by paying a few dollars to get added as an authorized user to somebody else’s account. Say what?! How is it that the feds haven’t cracked down on all these things?

People don’t think about the actual risk these fast and easy repairs and non-ethical authorized user account referrals really are to the lending institutions. If you have to refer borrowers to these kinds of places, it’s probably not necessarily a positive thing. And are you really doing the borrower any favors? Are the borrowers that are getting referred to do these things really aware of what they’re doing? Do they really understand that they are somewhat cheating the system and going around the infrastructure that’s supposed to be in place for them to build their credit?

Though impossible to get my hands on it, I’d sure be curious to see the data that compares the default rates of mortgages granted to borrowers who go through credit repair and/or use these fake authorized user account systems to build enough credit to get approved for a mortgage. I think it goes without saying they have to be higher than average. Why do I make that assumption you ask? Why do I unfairly judge these situations? Let’s think about it for a minute. One of the major lending blocks in our business is making judgment on the borrower’s credit and part of that evaluation is analyzing the borrower’s stability. When you have a borrower in front of you who either has no credit history, has only derogatory credit history, has no recent or current credit, or who has a mess of old outdated derogatory credit, how can we consider their credit history stable? Does sending them across the street or down the block to a credit repair place or referring them to build unethical credit by paying to be added on to an online authorized user credit account really allow us to judge their credit history as stable?

Here’s an example. Say Mr. Jones’ credit report shows no current tradelines, past tradelines with late payment histories and only outdated, duplicate collections spanning over five years. We’d be able to see an overall credit profile of five years. This means it took the past five years to build the derogatory credit history we see in front of us. But then through the advice of a loan officer who swaps referrals back and forth with a credit repair place, Mr. Jones gets online, pays a few bucks, gets himself added onto some authorized user accounts and pays $1500 gets his duplicate collections removed from his report in 24 hours. Now suddenly Mr. Jones has a credit score and a credit profile starts rebuilding. Does this now justify and allow us to consider Mr. Jones as stable over the past few years and is Mr. Jones now a safe lending risk assuming he qualifies in other areas? Some would say yes, some would say no.

Here’s my major brief with this.

1. It’s completely unethical to refer consumers to pay money to rent themselves a spot as an authorized user on somebody else’s credit when there is no known relationship between the owner of the account and the consumer. It’s also unethical from the standpoint that in most of these cases, I’d have to guess the consumer is perhaps not substantially educated or informed nor do they truly even understand what they’ve been told to do. Coaching a person to do something around the system simply to make a commission off of them is unacceptable and unethical. Most importantly, it’s not in the borrower’s best interest. It’s easy for you to recommend and coach somebody to participate in such a practice when it’s not your credit or future on the line.

2. How often does anyone volunteer to the same borrower that they can get their credit repaired through the system as it was intended in 30 days or less at no cost? Give the borrower the option- Pay $1500 to get some old derogatory credit cleaned up in 48 hours or obtain your free credit report online, request account investigations and dispute inaccurate reporting for free. How many of these borrowers are really given the information to make an informed choice?

3. I’ve seen a few situations where these credit repair places wanted to charge a consumer $1500 - $1800 to fix their credit. In each one of the situations I looked at, these were lower income bracket borrowers with no substantial savings, no reserves, derogatory credit histories trying to purchase homes with no downpayment funds of their own and sellers contributing to cover all closing costs and prepaid expenses. Now if that isn’t a high risk situation, I don’t know what is. Basically these borrowers would’ve had to borrower another $1500 - $1800 that they didn’t have in the first place to pay somebody else to clean up their credit by doing things that the same borrower could accomplish for no cost. When I was asked my opinion, as you might guess, I gave it. I also sent over FTC credit information materials so that they could be provided back to the borrower and taught the loan officers how to walk their borrowers through the process of getting the credit permanently cleaned up through the big bureaus for no charge. I’ve provided links to these materials below- please use them!

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FTC-Your Access to Free Credit Reports
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.pdf

FTC-Getting Credit
http://www.ftc.gov/bcp/conline/edcams/gettingcredit/

FTC-Credit Repair-How to Help Yourself
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.pdf

FTC-How to Dispute Credit Report Errors
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.pdf

FTC-Advance-Fee Loan Scams: Easy Cash Offers Teach Hard Lessons
http://www.ftc.gov/bcp/edu/pubs/consumer/telemarketing/tel16.pdf

FTC-Building a Better Credit Report Booklet
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.pdf

FTC-Co-Signing a Loan
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre06.pdf

FTC-Credit and Your Consumer Rights
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre01.pdf

FTC-Equal Credit Opportunity-Your Rights Under the Law
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre15.pdf

FTC-Getting Credit: What you Need to Know About Your Credit
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre32.pdf



About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.