Congress Passes Law Restricting Mortgage Trigger Leads

Both houses of Congress passed legislation which limits the use of mortgage trigger leads.

When a consumer applies for a mortgage loan, an early step in the process involves their lender or broker obtaining the prospective borrower’s credit report.  “Trigger leads” generally refer to a process where lenders purchase reports from consumer reporting agencies (CRAs) which identify consumers who meet specific criteria and who were recently subject to a credit check in connection with an application for a mortgage loan with another lender.  Since many mortgage lenders may receive a trigger lead about the same prospective borrower after the borrower’s credit is pulled by the original lender, the prospective borrower may receive a sudden influx of unsolicited new mortgage advertisements and communications.  Under the Fair Credit Reporting Act (FCRA), lenders are only allowed to receive these leads for marketing purposes if they use the information to make firm offers of credit to the consumers (i.e., an offer of credit that the lender must honor if the prospective borrower does in fact meet the specific criteria used to identify them for the offer, with limited conditions).  In practice, however, the lenders receiving these trigger leads have not always provided a firm offer of credit to the consumers at issue.

The new federal law is titled the Homebuyers Privacy Protection Act.  It provides that the CRAs may now only provide trigger lead information to a person if that person either: 1) can provide documentation certifying that they have the consumer’s authorization to obtain the consumer’s credit information; 2) originated the consumer’s current residential mortgage loan; 3) are the servicer of the consumer’s current residential mortgage loan; or 4) is a depository or credit union which holds a current account for the consumer.  Further, the CRA may not provide the information unless the recipient will use it to make a firm offer of credit.

The law now goes to the President to be signed and will go into effect 180 days after the President signs it.

This new federal law follows on the heels of recent actions by state legislatures to pass state-level laws restricting the use of mortgage trigger leads (see coverage here).