Lending: Dodd-Frank Act
Lending Legislation. The Dodd-Frank Act Significant changes for Retailers in 2014 The U.S. Congress in Washington passed the Dodd-Frank Act in 2010. This massive new law is causing major changes related to the way financing is done in pretty much every industry. The new Consumer Financial Protection Bureau (CFPB) has now finalized their rules on what the law actually means. For manufactured home retailers, the Dodd-Frank Act and resulting CFPB rules are going to result in some changes of our industry’s business model. Primarily, the new changes are going to restrict the interaction retailers can have with a customer about financing. The new rules are effective January 1, 2014.
What is a loan originator and why you don’t want to be one
Dodd-Frank has a very broad definition of what activities can trigger the definition of “loan originator.” A retailer that performs these activities will potentially be in danger of the CFPB coming after them for being an unlicensed loan originator. Aside from the unwanted attention of federal officials, lenders may decide to avoid doing business with the retailer because it could trigger additional liability problems for them.
How to avoid being a loan originator
The list below contains activities that can trigger the loan originator law:
- Do not refer, recommend, or steer a customer to a specific lender. Retailers can no longer refer a customer to a lender as has been the case in the past. Giving a customer a loan application from one lender and the retailer saying “we’re not recommending this lender, but they do MH loans” is still likely going to be considered as a referral.
- Do not pull a credit report on a customer to try and determine what lender or program will work best for them. See the above section about referring, recommending, or steering.
- Don’t discuss loan terms. Under the federal law, conversations about loan terms, interest rates, etc. should be had with a lender, not the retailer. Avoid discussions about financing specifics with customers.
- Do not fill out an application for the customer, take an application over the phone, or input their information into a computer’s system for an application.
- When in doubt, let the customer and lender sort it out.
What can a retailer do without violating the loan originator law?
The law and rules provide some exceptions, primarily relating to answering general questions. A retailer typically can:
- Provide a general overview of how the lending process works or explaining terminology to a customer.
- Generally describe an application to the consumer so they can complete it.
- Compile and process loan application materials and supporting documentation.
- Provide general information about lenders that may offer financing for manufactured homes in the consumer’s area (without referring).
- Make available in a neutral manner brochures or information about lenders that offer financing for manufactured homes (without referring).
The information below is a very broad summary of well over a thousand pages of statutes and regulations. Attached to this document is a more comprehensive analysis which you should also read. These documents are not legal advice and you should consult your attorney as to how the law and regulations will specifically impact your business. This is a very complicated area of the law and subject to change and interpretation—do your due diligence before acting.