Banker, Broker, Consumer Lender or Credit Union? Part 3
Jillayne Schlicke on 07 16, 2007
This is part three in a four part series in which I outline advantages and disadvantages of different types of lending institutions. Part one covered banks, part two covered mortgage brokers and correspondent lenders, and part four will cover credit unions. Today’s article is about consumer finance companies.
Consumer finance companies fill the gap between what a bank will do for you and an adventure into complete financial collapse. A finance company will take enormous risks and you will pay the price for using this type of lender in rate and fees.
A state consumer loan license allows a company to make loans in excess of state usury limits. Consumer finance companies can legally charge up to 25% interest per annum. The law also allows for the lender to smile when presenting you with the fine print disclosure documents.
Consumer finance companies traditionally made unsecured personal loans, car loans, boat loans, and the like. These companies entered mortgage lending with a vengeance when the subprime market opened up and money came raining down from the sky.
Under many state laws, mortgage broker firms are now required to license their loan originators (LOs). Originators must submit fingerprints, undergo a background check, pass a competency test, and maintain their license with continuing education. It is no secret that LOs who do not want to undergo this minimum level of scrutiny have quit mortgage brokerage firms and walked across the parking lot to consumer loan companies.****Correction added 7/20/07: In Washington State, 1099 independent contractor loan originators who work at a consumer loan company must become licensed and pass the state competency test. W-2 employees of consumer loan companies are exempt. For our out of state readers, if you’re not sure about the licensing status of your loan originator, contact your state’s regulator.[photopress:easy2buy.jpg,thumb,alignleft]Perceived advantages
*Anyone can get a loan here, even your lol cat *Locations that seem a bit too convenient*Superfluously friendly loan officers*Competitive rates when compared to the early 1980s.*You will receive a plethora of invitations to refinance after you’ve made a series of on-time payments. Not all finance companies will use a name that allows for quick identification of its license type. If you are uncertain what type of license your lender operates under, ask.
Also, listen carefully to those radio ads. At the end, you will most likely hear something like this, said really fast: “equalhousinglenderconsumerloanlicensenumber1234567notallloansapply”
You should be able to hear their license type and number.
Important: Two of the biggest predatory lending settlements in our nation’s history took place with consumer finance companies. Household Finance and Ameriquest both settled out of court for millions. There has never been nor will there ever be enough government resources to investigate and bring action against every single predatory lender. In light of this, state regulators must decide which companies to go after. At that time, they must dip into their budget and plunk down thousands of dollars with the state attorney general. So how do state regulators decide which companies to go after? Well, one way is to figure out what action will will yield the greatest good for the greatest number of people. In that event, penalties under a state’s Consumer Loan Act are usually greater than under a state’s Mortgage Broker Practices Act. This means a larger settlement, returning money back to consumers. Now replace the word consumer with the word voter.
If the only type of lending institution that will loan you money is a consumer finance company, instead ask a rich friend or relative for the money.
In part four, we will analyze credit unions.
About the Author: Jillayne Schlicke
- Author's website: http://www.ceforward.com
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13 Responses to “Banker, Broker, Consumer Lender or Credit Union? Part 3”
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[...] For part one of this series, I will provide reasons for and reasons against choosing a bank as your lending institution. Part two will cover brokers and correspondent lenders, part three will delve into consumer finance companies and in part four we’ll look at credit unions. [...]
“It is no secret that LOs who do not want to undergo this minimum level of scrutiny have quit mortgage brokerage firms and walked across the parking lot to consumer finance companies.”
A LO who does not want to go through the steps to become licensed, including the background check, the exam and clock hour courses could also work for a bank-mortgage company…right Jillayne?
Hi Rhonda,
Job applicants seeking a position at a state or federally chartered bank should be prepared for a full pre-employment background screening, including drug testing, fingerprint check, and a criminal background check.
Employees of banks, credit unions, and consumer loan lenders will not have to pass a minimum level competency test and are not required to take continuing education classes. Loan originators who work for a broker MUST pass a test and maintain their license with continuing ed (in most states.)
With that said, banks are set up internally with fully staffed training, auditing, and compliance departments. Some large mortgage banks such as Countrywide for example, have extensive online education programs. It is rare if not practically non-existent to find the same level and quality of training and education ON SITE at any mortgage brokerage firm, unless they are very, very large and have begun the process of turning into a correspondent lender, which I covered in part two.
This is an excellent series. Regarding training and non-training of LOs, there is definitely more training at large mortgage banks such as Countrywide et al. However, it is rare that the best LOs stay at those employers. At some point, top producing loan officers will almost always make the jump to a brokerage simply because the pay is better. Much better.
Once you develop your referral sources and are no longer in need of lead, there is absolutely no reason to be at bloated mortgage bank.
From my observation, it seems that the LOs at large banks are usually brand new to the business.
I always explain the difference in that mortgage brokerages tend to have the best and the worst loan officers, so it is very important you shop the LO and know exactly who you are dealing with. Mortgage banks on the other hand tend to just be mediocre all around.
Hi Russ,
Thanks for stopping by raincityguide.com
How’s the market in Chicagoland? It looks like you have a good blog going on to help educate consumers. Part one of this series covered banks and the loan officers that work there, in great detail. Here’s the link:
http://www.raincityguide.com/2007/06/17/banker-broker-consumer-lender-or-credit-union/
If you believe it would help your readers, feel free to ping back to us.
Oooh. I got one. My 2nd mortgage lender HSBC had their consumer lending division: Household Finance/Beneficial Home Loans contact me today, asking me if I ‘wanted to save money and get a lower rate!!!’.
I told them I was a mortgage loan originator, and that pretty much ended the discussion.
However, when things slow down, I think I’d like to get a quote from them just for kicks and see what the current shadiness is up to…how much YSP they’ve got (I’d just compare it to an HSBC 2nd mortgage secondary marketing ratesheet) and what kind of fees they have.
Fun stuff eh!!
Kindly.
Hi David,
That WOULD be an interesting compare/contrast. It’s interesting that they’d have their consumer loan division telemarketing their own existing clients.
“It’s interesting that they’d have their consumer loan division telemarketing their own existing clients”
This is a common practice with banks, too. For example, when I send a loan to Chase or Countrywide, they actively pursue “my client” (the person I orignated the loan for). I’m not sure if Wells is still doing this, but at one point, if I was refinancing a mortgage that I had sent to Wells, the action of Escrow ordering a payoff would trigger Wells to FedEx an offer to refi to the borrower.
I have added a correction to this blog article above, in the main body. For readers following the comments on this article, here is the correction:
“In Washington State, 1099 independent contractor loan originators who work at a consumer loan company must become licensed and pass the state competency test. W-2 employees of consumer loan companies are exempt. For our out of state readers, if you’re not sure about the licensing status of your loan originator, contact your state’s regulator.”
Jillayne, if a LO is out of state and working for a big bank lender (like Wells Fargo, Countrywide, WaMu or Chase…etc…) do they need to be licensed?
BTW you correction just goes to show that licensing is very confusing. We ALMOST qualified to not have to be licensed…but I’m glad we are…I’m viewing it as a distinct advantage over “unlicensed Loan Originators”
Federal banks are exempt from state mortgage broker licensing laws including licensing and testing of individual loan originators.
Remember though, that all institutions follow federal laws governing the practices of mortgage lending such as RESPA and Truth in Lending.
[...] If you enjoyed part four of this four part series on different types of mortgage lending institutions, here are links back to the other three: Part 1 Banks and Mortgage Banks Part 2 Mortgage Brokers and Correspondent Lenders Part 3 Consumer Loan Lenders [...]
[...] Banker, Broker, Consumer Lender or Credit Union? Part 2 July 5, 2007 This is part two in a four part series in which I outline advantages and disadvantages of different types of lending institutions. I will also offer suggestions to empower the reader on how to help yourself before and during your loan process. Part one covered banks, part three will cover consumer loan lenders, and in part four we delve into credit unions. [...]