FT. LAUDERDALE, Fla.–Credit union lenders here were offered a checklist of reminders on some traditional compliance issues, as well as new emerging challenges every CU must now monitor.
Jon Bundy, compliance manager, service products, with CUNA Mutual Group told the CUNA Lending Council meeting here there are a host of evolving compliance issues that ever lender needs to be monitoring.
Among some of the points made by Bundy, including some reminders:
Jon Bundy, compliance manager with CUNA Mutual, speaks to CUNA Lending Council meeting.
- With most CUs in Bundy’s session indicating they are doing prescreened, preapproved offers, he reminded CUs they are required to provide special notices to members offered credit based on prescreened lists from credit agency, and that members must be able to opt out. Credit unions must make a firm offer of credit to all members who pass the prescreening process, and a CU must retain prescreen criteria for three years.
- “If the member comes into a branch and asks for a loan, that’s a pretty clear indication you need to pull credit. But if you pull data to offer a prescreening, “now you have to give something back. You need to have disclosure, tell people they can opt out, and it needs to be a firm offer of credit. It really depends on what jurisdiction you are in to determine what is a ‘firm’ offer. You need to be fairly specific about what your firm offer is in as much detail as you can in that preapproval offer.”
- Bundy said he has also been seeing a lot more prescreening of credit card disclosures and it’s important that “you make sure the disclosure that’s coming in the future, such as a credit card agreement, is called by the correct name in the offer.”
- Should an expiration date be put on such prescreened offers? Yes, said Bundy.
Should a credit union put an expiration date on thos offers: yes.
Advertising Issues
- Bundy reminded that Reg Z (TILA) has trigger terms requiring additional disclosures
- Reg B (ECOA) and the Fair Housing Act prohibit discrimination based upon numerous factors. “Reg B can be pretty squishy. A special promotion to one population must be made available to all populations.”
- UDAAP is also squishy, said Bundy. “The CFPB has defined it; they say they know (violations) when they see it. So what we can take from that is we just have to be careful. The best thing is to look at what enforcement actions have been taken by the CFPB and the learnings from that. The UDAAP violations we’ve seen have been in credit card and loan programs where there are add-ons and it’s not clear how the consumer opted in.”
“How many of you are thinking, ‘Hey, my marketing people handle all this.’ The thing you need to be worried about is do your advertising and marketing people understand your loan products as well as you do? Probably not. So make sure they have all the correct terms. What happens when ad folks run out of ad space? Don’t put your attorney in the spot of having to go before a court and read a disclosure in a very small point size.”
The Credit Invisible
Bundy noted that “one thing I’ve heard discussed more at this Lending Council meeting than any other is what about opportunities for folks who are credit invisible or unscoreable. There are 19.4 million Americans with credit records that can not be scored. Experian says 64-million don’t have a FICO score. The CFPB says 26-million Americans are credit invisible. Why is there interest in these folks as new members? A lof of these are Millennials, most under age 25. The thing that surprised me is if you take a sampling of these groups and look at their credit history and payment history for things that aren’t getting scored, what would they look like if they could be scored for FICO? A lot of them are not subprime borrowers.
One new piece of alternative data to consider, said Bundy, is VantageScore, a new credit scoring model from three major bureaus. “It looks at 24 months of credit history and adds alternative data, such as rental history and utility and phone bill payment history.”
Bundy noted alternative lenders have been using location data from a personal social network and eCommerce sites to validate occupancy and stability of residences.
There are also online tools that create alterantive credit scores, such as Happy Mongo.
“Our competitors are using this information to score these individuals, and it’s time perhaps we consider, as well,” said Bundy, before adding, “But there are pitfalls. Fair lending laws and regualtions still apply if you are FCRA compliant. One important note: with exception, creditors may not request certain information, such as an applicant’s race, color, religion, national origin or sex. But many social media platforms may collect such information, so a creditor should ensure that it is not requesting, collecting, or otherwise using such information in violation of applicable fair lending laws.”