Quicken Loans Inc., a mortgage lender based in Livonia, Michigan, has agreed to settle Federal Trade Commission charges that it failed to provide "adverse action" notices in violation of the Fair Credit Reporting Act (FCRA). The FTC alleges that Quicken Loans failed to comply with the provisions of the Act that require credit grantors who take adverse action - for example, denial of credit, insurance, employment, or certain other benefits - to notify the consumer when the action is based wholly or partly on the consumer's credit report. The notice is designed to give consumers the opportunity to dispute the accuracy or completeness of the information in the credit report. The proposed consent agreement, announced today for public comment, would require that whenever Quicken Loans takes any adverse action with respect to an application for credit, either in whole or in part because of information contained in a credit report, it must provide to the applicant the notice specified in section 615(a) of the FCRA.
"Consumers who are denied credit or other benefits based on their credit report have a right to know, and lenders have a legal responsibility to tell them," said J. Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "An adverse action notice is the key to maintaining the accuracy of sensitive personal information and the signal to check your credit report for accuracy."
Quicken Loans is one of a growing number of companies that offer loan products online. According to the FTC complaint, for a period of about one year, Quicken Loans offered approximately 35 different mortgage loan products on its Web site, as well as additional loans that were available offline. Consumers were offered an opportunity to obtain online "preapproval" for a loan based on the company's review of the consumer's credit report, as well as information supplied by the consumer.
Consumers who were "preapproved" for online loans received an online letter containing the terms of the loan - the loan amount, interest rate, points, and annual percentage rate - for which the consumers were preapproved. Preapproval letters often are used by home buyers to demonstrate to sellers that they will be able to obtain a mortgage.
Consumers whom Quicken Loans did not preapprove for one of its online loans received an advisory stating that, "[b]ased on the information you have provided, it appears that you have unique borrowing needs." Quicken Loans invited these consumers to click a button reading "NEXT STEP" to provide contact information that would allow a Quicken Loans loan consultant to contact them about other possible Quicken Loans loan options. Consumers who received the "unique borrowing needs" advisory but did not submit the contact information online received no further contact from Quicken Loans.
The FTC alleges that Quicken Loans' failure to provide a "preapproval" letter was an "adverse action," as defined in the FCRA, and triggered the requirement that consumers be notified that the decision was based in whole or in part on information in the consumers' credit reports. Where adverse action is taken, Section 615 of the FCRA requires the lender to notify the consumer of the name, address, and telephone number of the consumer reporting agency from which the report was obtained; the consumer's right to obtain a free copy of the report; and the consumer's right to dispute the accuracy or completeness of information in the report. The FTC charges that because Quicken Loans did not provide notification to consumers who were denied preapproval online, Quicken Loans was in violation of the FCRA.
Under the terms of the proposed consent agreement, whenever Quicken Loans takes adverse action with respect to a consumer's application for credit, based either in whole or in part on information in a credit report, Quicken Loans must provide the consumer with a notice that complies with the FCRA. Under the proposed order, the FTC would not view Quicken Loans' failure to grant an online request for preapproval as an adverse action if the company meets certain specific requirements, including that:
- Quicken Loans provides a clear and conspicuous disclosure in close proximity to the preapproval offer that preapproval may be granted online or offline; and
- if Quicken Loans determines it cannot grant preapproval online because it needs additional information, it notifies the consumer that: 1) the request for preapproval has not been denied, but that Quicken Loans needs additional information from the consumer; and 2) if the consumer submits the additional information, Quicken Loans will decide whether to grant the request and inform the consumer of its decision.
The proposed order also contains various record-keeping provisions to assist the FTC in monitoring the respondent's compliance with the order.
The Commission vote to accept the proposed consent agreement for public comment was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until January 29, 2003, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, the proposed consent agreement, and an analysis to aid public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. 022-3103)
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