A federal consumer advocate says people shouldn’t trust online lenders to apply their mortgages and loans.
In a report, the Consumer Financial Protection Bureau (CFPB) says online lenders have a “moral and legal duty” to provide borrowers with information about their mortgage, including loan-to-value (LTV) calculations, payment history and income.
It says the CFPB is concerned that these loan-information requests “are not subject to the same safeguards as the documents that are submitted by traditional lenders”.
“If a loan is secured by a debt, such as a home mortgage, it is the responsibility of the borrower to ensure the borrower is able to afford the loan and to provide the loan payment information and income information that the lender requires,” the report says.
“In many cases, online lenders do not ask borrowers for loan information and it is not known how much money the borrower would pay in interest if they applied for a loan online.”
In addition, the CTFB says lenders need to give borrowers more information about how to repay a loan and if they need a guarantor to make the payment.
The CFPBs report says online loan applications have increased dramatically in recent years, as lenders look for new ways to raise revenue.
But it warns consumers should be wary about trusting online lenders.
“[Online lenders] are required to provide information about the borrower’s finances, including the amount and type of debt and whether they are able to repay it,” the CPPB says.
“However, they are not required to disclose information about income or other financial information.”
It recommends consumers avoid online lenders that “refuse to provide loan-related information and/or information that does not comply with applicable laws”.
The Federal Reserve Bank of Atlanta, which has an online loan service called Citi Loans, says it is aware of the CTCB’s concerns and is reviewing its processes to help consumers.
CEO Mark Pritchard says the company has implemented a “system of accountability” to ensure borrowers have confidence in the information they are provided.
“(We) are also taking steps to make it easier for consumers to obtain the information and services they need from a lender, Pritchett said.
He says Citi has a team of credit counsellors to help borrowers, and its platform is designed to help people understand their options and understand when their information is required.
‘Not worth the effort’ But the CCCB’s report says it also warns against “flawed practices”.
For example, online loan lenders have often refused to provide LTV calculations, which would make it impossible to calculate the value of a home loan.
And while lenders have long given lenders access to loan-data, the report warns these services may not be reliable.
Pritchard said he believes “there is value” in the LTV calculation, but “it does not make it into the loan application.”
And when it comes to assessing the value, it may not even be complete,” he said.
“There may be a gap in the data.
There may be something missing that might not be disclosed in the loan information.”
Pritchet said he hoped the CCRB would investigate how many borrowers are unable to access the information.
“We are committed to the principles of the Consumer Protection Act, and we believe that these are just a few of the issues that need to be addressed,” he told ABC News.
“If there are people who cannot access the loan details, or have a problem accessing the information, we want to know about it.”
There needs to be accountability and there needs to help ensure that borrowers have the information that they need.