When consumers apply for home loans, credit bureaus often sell their information to other lenders, which might call the prospective borrowers with competing offers.
But many consumers view this as a violation of their privacy, and in at least five states, lawmakers who say they have been flooded with complaints are considering bills that would either prohibit "trigger leads" or establish rules for their use. Related Link
The Consumer Data Industry Association, the trade group for the credit bureaus, contends that trigger leads are permitted under the federal Fair Credit Reporting Act, and that states do not have the authority to impose a ban or regulations.
Moreover, Stuart Pratt, the trade group's president, argued that the leads are good for consumers, because competing offers can lead to more choices and, ultimately, better deals.
"Triggers are just like going to the mall," Mr. Pratt said. "In essence, what opponents are telling consumers is: Don't comparison shop."
But state lawmakers such as Rep. David M. Nangle of Massachusetts argue that consumers already compare prices before applying for a mortgage.
Bills in Massachusetts and Minnesota would ban trigger leads. Three other states — Connecticut, Maine, and Wisconsin — are considering controls over the leads, such as requiring companies that use them to identify clearly to the consumer where they got the information and to disclose that they are not affiliated with the original lender.
Rep. Nangle, who authored the Massachusetts bill, said consumers have a heightened sensitivity to the issue, because of growing concern about identity theft.
"Consumers and local banks want assurance that the loan process is private," the Lowell Democrat said.
He said he drafted his bill because of complaints from constituents who were "puzzled and annoyed" when they were inundated with calls from lenders. Also, bankers have told him they have taken calls from upset customers accusing them of selling private information.
The Massachusettts General Court's Joint Committee on Consumer Protection and Professional Licensure held a hearing on the bill last week. During the hearing, the Massachusetts Bankers Association testified in favor of the proposed ban, and the credit bureau trade group argued that states cannot impose one. The committee asked the trade group to explain in writing the basis for its assertion.
"We're waiting to see a formal response to that request," said David Floreen, the senior vice president for government affairs at the bankers group.
Bankers are less concerned about having business taken away than they are about upset customers, Mr. Floreen said. "What we believe is, it isn't a matter of who gets the best deal. It's a matter of trust and privacy."
According to Mr. Pratt, the credit bureaus started offering trigger leads about 18 months ago. The leads are "prescreened," meaning borrowers meet particular criteria set by the companies buying the leads, and such a setup is allowed under the Fair Credit Reporting Act.
Rick Fischer, a partner at the Washington law firm Morrison & Foerster LLP, agreed that federal law removes any power over prescreening from the states.
"The only body that can change the rules is Congress," he said. "No state can establish a regulation or prohibition … with respect to prescreening."
The outcry over trigger leads has reached Congress, and several members, including House Financial Services Committee Chairman Barney Frank, D-Mass., have said they are going to look at the issue, according to Mr. Fischer.
"Massachusetts can't do it on their own," he said. "What they need is the intervention of Congress."
Some state officials say that even if trigger leads cannot be banned outright, they can be regulated.
A bill in Connecticut initially sought a ban but has been revised to require more disclosure to consumers about who is contacting them and where the information originated.
"We think this is a privacy issue," said Gerry Noonan, the president of the Connecticut Bankers Association, which supports the bill. "We originally wanted a prohibition on trigger leads, but we're settling for a notice provision. We think that's at least the fairest thing."
William N. Lund, the director of the Maine Office of Consumer Credit Regulation, said that lawmakers in his state expect to introduce a bill within a week to address predatory mortgage lending, and that the bill will contain a provision his office championed to prohibit "the misleading use" of trigger leads.
"I think the federal law preempts the state from prohibiting the use of trigger leads," he said. "But in my view, it is within the state's authority to require that functions like trigger leads be used in a way that is not misleading."
The leads are triggered when a "tri-merge" report is pulled from the three major credit bureaus, as is done whenever someone applies for a mortgage, Mr. Lund said.
"My understanding is, the word 'trigger' comes from the fact that it is a three-bureau report that triggers this notice," he said. "That tells the computers this is the hottest of all hot leads. This is a consumer who not only might get a loan, but this is somebody who has just applied."
Consumers often find their phone ringing as soon as they get home from seeking a loan, because other lenders are trying to win their business, Mr. Lund said.
"What we found in Maine is that the temptation to mislead consumers proved irresistible," he said. "It would be well into the conversation that the consumer would realize the caller had nothing to do with the lender who took their application."
The Maine bill also would require that trigger leads to be scrubbed against the do-not-call and opt-out lists, and it would echo the federal law in requiring "a firm offer of credit" to be made to the consumer, Mr. Lund said.
"Prescreening is a legal violation of our privacy," he said. "But in exchange for that, we are supposed to get something — and that is a credit offer."
That argument points to another controversial aspect of trigger leads: their sale to third-party lead generators, who then resell the data to originators.
In a position statement opposing the use of trigger leads by lenders, the National Association of Mortgage Brokers argues that any sale to lead generators violates federal law, because those companies cannot offer consumers credit.
The trade group said it opposes trigger leads in part because they increase the chance that consumers would become victims of identity theft or bait-and-switch schemes, where unscrupulous lenders offer a low rate that is later revealed to be much higher. The group also favors restricting the use of trigger leads to written solicitations only, to ensure that consumers are notified of their right to opt out.
Adam Levin, the president of Credit.com Inc., a San Francisco aggregator of sales leads for credit cards and other financial products, and a former director of the New Jersey Division of Consumer Affairs, said trigger leads make him "nervous" for consumers.
"It is disturbing that consumer reporting agencies are gaily spreading your information across the countryside," he said. Even if it is legal, "is it proper for them to do it?"
The subprime mortgage meltdown is likely to make the issue of trigger leads a hotter topic over the next few years, Mr. Levin said.
Though federal law generally preempts state law, he said he does not agree that states cannot take any action. "States can take the position that the federal law is not a ceiling. It's just a floor."
