Banking Interpretations
NYSBL 590(1) and 590(2)
Memorandum
To: Deputy Bielemeier
From: Assistant Counsel Abram
Date: February 18, 2005
Subject: "Online Lead Generators" as Mortgage Brokers
Issue
In what circumstances does an entity (an "online lead generator" or OLG) which (1) collects indications of interest in mortgage financing and personal information from consumers online, (2) communicates that information to potential lenders to obtain indications of interest, and (3) identifies interested lenders to the consumer need to be registered as a mortgage broker?
Recommendation
Where the OLG collects from the consumer and communicates to participating lenders sufficient personal information that a lender can make a preliminary credit decision, the entity is acting as a mortgage broker and should be registered.
Background
Counsel to a mortgage lender requests general guidance as to when OLGs it might wish to work with need mortgage broker registration. In general, he advises, when a consumer clicks on an OLG's ad for mortgage loan information, the consumer is asked to complete an online form giving the type and location of the property, the type of mortgage being sought, the terms and balance of any existing mortgage, and whether he is seeking any new cash. The consumer is also typically asked for employment information, annual income, annual debt payments, bankruptcy history and self-perception of current credit standing.
The OLG forwards this information electronically to its subscribing lenders. The lender filter the information either through software provided by the OLG into which they have inserted their own credit parameters or through their own software or human reviewers, and tell the OLG whether they are interested in responding to the consumer's inquiry.
The OLG provides the consumer with identifying and contact information on any lenders which have indicated interest. Any subsequent communication is directly between the prospective lender and the consumer. The OLG receives a flat fee from a participating lender for each such match. The OLG does not receive any other compensation from either the consumer or the lending institution.
Reasoning
The Department has broadly construed Section 590 in order to ensure that the state's scheme of registration and regulation for participants in the mortgage lending process is comprehensively applied, and thus to effectuate the statutory purpose of consumer protection. In addition to the general benefits of ensuring that entities involved in the mortgage lending process in New York meet the state's basic standards of honesty and efficiency, registration ensures that such entities are obligated to provide the protections for consumers contained in Part 38 of the General Regulations of the Banking Board. Some of these protections, including certain of the advertising requirements of Section 38.2 and disclosures required in Section 38.3, seem clearly applicable to the manner in which OLGs conduct business.
Subject to certain exceptions, registration as a mortgage broker is required under Banking Law Section 590(2)(b) if an entity engages in the business of "soliciting, processing, placing or negotiating" mortgage loans. These terms include, among other things, directly or indirectly "accepting or offering to accept an application for a mortgage loan", "assisting or offering to assist in the processing of an application for an mortgage loan" and "soliciting or offering to solicit a mortgage loan on behalf of a third party". Section 590(1)(d).
Neither "soliciting" nor "application" are defined in Article 1 2-D of the Banking Law. Among the dictionary definitions of an "application" is a request for something, or the form or document on which a request is made. As indicated in a prior opinion regarding a similar factual situation, it is the position of the Department that when the information collected from the consumer by the OLG and distributed to participating lenders is sufficient for those lenders to make a credit decision, the process amounts to an application. This is true even if the lender's credit decision is preliminary and subject to confirmation of the information provided. Whether an OLG's process involves an application will be a question of fact which may vary from case to case. However, in the generic example given by counsel we believe the nature and amount of information collected would be sufficient to enable a lender to make a preliminary credit decision, and that the OLG is therefore accepting or offering to accept an application for a mortgage loan for compensation within the meaning of Section 590{1)(d) and must be registered as a mortgage broker.
While "soliciting" is not defined in Article 1 2-D of the Banking Law, loan solicitation is very broadly defined in Article 9 governing licensed lenders, where it includes "any solicitation, request or inducement to enter into a loan . . . whether or not such solicitation, request or inducement constitutes an offer to enter into a contract." Section 355(2). Dictionary definitions of soliciting are also very broad, including "seeking or endeavoring to obtain something."
Counsel argues that an OLG is simply offering advertising space on its web page, in a manner analogous to the page of a newspaper. In the case of licensed lenders, such purely passive advertising does constitute loan solicitation. However, in the case of mortgage brokers the Department has not determined that such purely passive activity requires registration, and it need not do so in this case. Whether an entity's role in the mortgage lending process is sufficiently active to constitute solicitation requires analysis of the specific facts. However, as described by counsel the role of an OLG in inducing and assisting consumers to seek financing goes well beyond passively displaying mortgage banker advertising. The OLG makes a business of inducing consumers to contact it regarding mortgage financing, obtaining from those consumers sufficient personal and financial information to enable its participating lenders to decide whether they wish to pursue mortgage loan opportunities with those customers, transmitting that information to its participating lenders and processing their responses. Only when this process is completed does the OLG identify any interested lenders to the consumer and step out of the process. While the OLG's activities cease prior to an offer by either the consumer or the lender to enter into a contract, they are a sufficiently significant element of the mortgage lending process that they properly can be considered soliciting or offering to solicit a mortgage loan.
Noted:______
SAK