Dalrymple column: Fed agencies seem aligned with consumer in recent lender case
Recently, among the flood of information pouring into my inbox about loans, there was an article indicating that the Federal Trade Commission and the Consumer Financial Protection Bureau had teamed up to write an amicus brief (a comment) in connection with a case pending before an appellate court. Apparently, a lawsuit has been filed by a consumer asking that a lower court compel credit rating giant Experian to investigate an incorrect item in the plaintiff’s credit report.
The FTC and CFPB say the lower court’s ruling, which said Experian was not required to do so, would impede a consumer’s right to redress for credit report errors.
Don’t leave yet. This is not an article about crimes and memoirs. On the contrary, I was struck by two powerful federal agencies coming to swing on behalf of a consumer. A banker in 1961 wouldn’t recognize the lending industry today, and he certainly wouldn’t appreciate it.
Oddly enough, people seem to be interested in what it was like to borrow money in the last century. Even more intriguing is the reaction from senior banking executives. CEOs of financial institutions can’t believe what it must have been like when the only rules were those set by the lenders and the borrowers had better play by them or not get the money. Yahoo!
Take credit reports: Most credit bureaus were cooperatives, owned and operated by merchants and business groups in a specific city or region. There was absolutely no consumer protection or accommodation law, state or federal. All leverage was on the side of the lender or merchant and the credit bureau itself.
For starters, a consumer had absolutely no access to their credit history and, by the way, married women had no credit history anyway. Business users of the bureau’s services were prohibited from disclosing any information on a credit report to the client or borrower, on pain of being prohibited from ordering reports.
The office has taken no responsibility for consumer information submitted by a business or lender. Some terms in a report can get quite salty, like in “DEADBEAT”, for example. In some parts of the country, the ethnic origin of the consumer was a mandatory information in the report.
Since the user of the report was prohibited from disclosing the details it contained, a borrower had no way of knowing what a report might say. There have been many cases where lives have been negatively affected or even ruined by incorrect information or mistaken identity, i.e. people with similar names have found themselves struggling with the bad credit history from another “Sam Jones”. Credit bureau phone numbers were not listed, their addresses undisclosed.
All this secrecy could make it difficult to process a loan. For example, FHA and VA underwriting guidelines required a written explanation from the borrower regarding credit issues, such as late payments and debts referred for collection. The explanation had to be specific, and the borrower was somewhat taken aback by the lender saying, “There is something on your credit report that needs an explanation.
Another lending practice that was perfectly legal then, but completely illegal now, was the custom of “redlining,” which means exactly what it says. This meant that banks and thrifts (S&L) would not lend on houses in certain neighborhoods, and those places were identified by, say, a map of the city, with red lines drawn around areas that weren’t not eligible for a residential mortgage. To be fair, the intention was not to discriminate; homes inside the red lines were older, smaller, and often not in the best possible condition because their occupants were from a lower economic demographic.
You know where this leads: Often the ethnicity of this lower economic group belonged to a specific minority. Thus, the saying against the loan meant that the potential collateral deteriorated further, making it even less desirable as collateral for a loan.
One more post, and I’ll shut up, bearing in mind my wife’s repeated reminder to refrain from “geezer talk,” rehashing the good old days:
It’s the one that lenders really liked. There was no mandate, either by regulation or by law. To clutter a borrower’s mind by disclosing the true cost of money, the Real Percentage Rate (APR). A bank, thrift bank, industrial bank or finance company could provide a second mortgage at, say, “6% interest”. But, what the lender did not explain, and was not required to do, is that the rate quoted was actually interest plus, as opposed to simple interest, which means that the rate of six percent was multiplied by the amount of the loan and added to the amount of the promissory note. The actual cost of the loan often doubled, depending on the repayment terms.
Disclosures to borrowers were made on a strict need-to-know basis, and all agreed that all they needed to know was whether or not they got the money.
My first job in the lending industry was working for a mortgage banker who only did FHA and VA buy mortgages (no refis). It was a busy store, with scheduled closings every hour. Nothing delayed the transaction like a reader – a borrower rude enough to, say, read the note and the trust deed.
If that happened, the policy was to politely say, “Why are you reading this? Don’t you intend to make the payments? »
Has worked every time.