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Trigger Leads: Has the Train Left the Station Already?
Tuesday, April 2, 2024

There’s been a lot of talk recently about trigger leads and whether or not they should be legal or even if they are helpful. But, what exactly are trigger leads? And what is being done about them?

What is a trigger lead?

Trigger leads occur when a lender pays a credit reporting agencies, such as Experian, Equifax, or TransUnion, to produce a report on a specific list of consumers. The lender provides certain criteria to the credit reporting agencies. The credit reporting agencies create a list of consumers that match both the lender’s criteria and a “trigger” event. The most common trigger event is applying for a mortgage, but there are others.

These trigger leads are considered a “prescreened offer” or a “firm offer of credit or insurance”. Trigger leads work similarly to the “pre-approval” letters from personal loan companies or credit card companies. Under the Fair Credit Reporting Act (“FCRA”), lenders can acquire these prescreened customer lists if the lender intends to extend a “firm offer of credit”. A “firm offer of credit” is defined under FCRA as an offer of credit or insurance that “will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer.”

These firm offers must not include conditions. Under this rule, all a consumer would have to do is accept the offer. It is vital that trigger leads are firm offers of credit because marketing is not a permissible purpose under FCRA.

However, some lenders have been found NOT to be following the requirements for prescreened offers under FCRA. In 2022, the FDIC found issues with lenders NOT providing “firm offers of credit” to consumers who were “trigger leads” as required under FCRA. The issues included instances where the financial institutions did not explain to the consumer:
1. An offer of credit was being made,
2. The offer was guaranteed as long as the consumer met the credit criteria,
3. The offer was prescreened based on the consumer’s credit report, and
4. The consumer could opt out of future prescreened offers.

This is not a new problem, but it is starting to get more attention from regulators and legislators.

Potential Regulation around Trigger Leads

Consumer Financial Protection Bureau (CFPB) Director Chopra in a Senate hearing earlier this year, in response to a question about trigger leads, stated trigger lead data “is increasingly being weaponized. And so, we’re looking at all of these data issues, and figuring out how to make sure we’re protecting the public.”

However, Director Chopra thinks trigger leads create consumer confusion around how mortgage lenders are getting the consumer’s information. And he admitted the CFPB’s authority is “somewhat limited.” However, the CFPB has convened a Small Business Review Panel about changes to the FCRA including changes to the use of consumer reports for marketing.

Congress’s authority is not as limited. The Trigger Leads Abatement Act (H.R. 2656) is a proposal aimed at regulating trigger leads to protect consumer privacy by limiting the trading of trigger lead data, helping to prevent misuse. There is another proposed bill, the Protecting Consumers from Abusive Mortgage Leads Act (H.R. 4198), designed to prevent trigger leads as well. Even though both of these proposed bills have bipartisan co-sponsors, there has not been any movement on either bill since they were first introduced.

Those in favor of these proposed laws argue that it could be a key step in preventing predatory lending by restricting access to consumer data. The idea is that financial institutions shouldn’t immediately target customers following significant financial events, as this may lead to undue pressure.

For instance, the National Association of Mortgage Brokers are supportive of the proposed legislation stating the proposal would bring “long-needed relief” to consumers around trigger leads.

If the legislation is passed, banks and other financial institutions might struggle to reach out to potential customers right away. This could throw a wrench in how they market their products and services.

There’s a concern that this bill could put a damper on competition in the financial sector. Especially smaller financial players, who rely on trigger leads to draw in new customers, might have a tough time keeping up with the big guys who have more marketing muscle and larger customer bases. Let’s also not ignore that trigger leads are a big business for the credit bureaus, like Experian and Equifax.

Trigger leads may go away on their own with the advent of one-to-one consent. Consumers may get more savvy about where their information is going. However, it feels like now there is a groundswell of support for some regulatory intervention into the use of trigger leads.

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