As trigger leads grow, credit bureaus' practices are called to question

Edward Jamison, credit attorney and founder, Jamison Law Group PC

As published in Scotsman Guide's Residential Edition, March 2007.

Trigger leads are becoming increasingly popular in the mortgage industry. A trigger lead is a mortgage lead that the credit bureaus sell to mortgage companies and to lead-generation companies. They get these leads every time a broker runs credit on a borrower.

The companies that purchase these leads can access your borrower's information the day after you pull a credit report. These leads are hot because every lead is a person who is actively shopping for a mortgage loan.

Industry associations such as the National Association of Mortgage Brokers (NAMB), however, have spoken out against the use of such leads. NAMB states that these leads allow companies to solicit consumers without their permission, therefore increasing consumers' risk of identity theft.

In turn, some in the industry wonder if the credit bureaus also are violating the three major federal antitrust laws: the Sherman Antitrust Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act.

Are they? Let's consider what the three laws cover.

• Sherman Antitrust Act: This act makes it a crime to monopolize any part of interstate commerce. Its definition of illegal monopolies includes those where one firm controls a product's or service's power through anticompetitive conduct, rather than via its product's or service's superiority.
  The act is meant to eliminate price-fixing and bid-rigging and also to outlaw anticompetitive activity. Because selling trigger leads actually increases competition, a lawsuit against the credit bureaus based on trigger leads would probably fail under the Sherman Act.
• Clayton Act: The Clayton Act prohibits "mergers or acquisitions that are likely to lessen competition," according to the U.S. Department of Justice. Under this act, the government challenges mergers that are likely to increase prices to consumers and prohibits some anticompetitive practices. When the size of a merger or acquisition proposal exceeds a defined threshold, parties must notify the U.S. Department of Justice's antitrust division and the Federal Trade Commission.
  As is the case with the Sherman Act, credit bureaus are probably not in violation of the Clayton Act by selling trigger leads.
• The Federal Trade Commission Act: According to its published definition, the Federal Trade Commission Act "prohibits unfair methods of competition in interstate commerce but carries no criminal penalties." The Federal Trade Commission polices violations of the act.
  In my opinion, the credit bureaus violate the Federal Trade Commission Act by selling trigger leads. Isn't it unfair for them to take your business information and profit from it?
  They are making it harder for you to compete by taking clients they obtained while doing business with you.

Brokers have no choice but to use the credit bureaus to get clients' credit reports. The bureaus unfairly use this to their advantage to make an extra buck. Although you are not directly in competition with the credit bureaus, the practice of them selling your clients' information for profit is unfair. They are using this to get a competitive edge.

The credit bureaus also benefit by selling more credit reports as a result of selling these leads; after all, those who buy the leads need to pull their own credit report.

It is possible to argue that my analysis has a weak link because I am comparing mortgage professionals to credit bureaus, and the two are not in competition. But if the law were designed to prevent a rotten apple from existing, it wouldn't matter if it were another apple or an orange sitting next to it.

Edward Jamison is a credit attorney and founder of Jamison Law Group PC in Los Angeles. His most recent product is www.creditcrm.com, which is a business-in-a-box system for opening your own credit-restoration business in-house. He can be reached at (310) 268-0580, ext. 103, or via e-mail at edward@edwardjamison.com.