This article discusses the address discrepancy rules which mortgage loan originators (MLOs), mortgage loan brokers (MLBs), landlords and property managers who are subject to credit reporting rules implement on their receipt of an address discrepancy notice.
The address discrepancy rule
To ensure the security of consumer credit report information, the Federal Trade Commission (FTC) enforces an address discrepancy rule. [15 United States Code §1681c(h); 16 Code of Federal Regulations §641.1]
Consumer credit reports are ordered by users and received from credit reporting agencies. The users of consumer credit reports are broken into two classes: those who do and those who do not report on applicants to credit reporting agencies.
A user of consumer credit reports is any individual and business which orders and uses credit reports as a basis for setting the terms of a consumer mortgage or the terms of a residential rental or lease agreement. Credit report users include:
- mortgage loan originators (MLOs);
- mortgage loan brokers (MLBs);
- lenders and banks;
- landlords; and
- property managers. [See RPI Form 202, 302, 550 and 551]
In application, the address discrepancy rule has two separate compliance aspects for users of consumer credit reports:
- confirmation of an applicant’s address; and
- reporting an applicant’s corrected address to credit agencies.
To confirm an applicant’s address, all individuals and businesses using consumer credit reports need to implement office management policies to administratively establish the accuracy of an applicant’s address on their receipt of an address discrepancy notice from a national credit reporting agency (NCRA).
The second aspect of the address rule places a further burden on users who also regularly report credit information to credit agencies. Those users who provide credit agencies with financial information on their clients must also report an applicant’s corrected address to the credit agencies. This aspect of the rule typically only applies to:
- lenders and banks with consumer mortgage portfolios; and
- MLOs who also service consumer mortgages.
The address discrepancy notice
Users who order consumer credit reports receive an address discrepancy notice from a credit reporting agency when an applicant’s address stated on the credit application substantially differs from the address the agency has on file for that applicant. [15 USC §1681c(h)]
The rule does not clarify when an address is considered to “substantially differ” from the address on file, leaving this distinction up to each credit reporting agency to determine when providing address discrepancy notices. Presumably, a submitted address may substantially differ from the address the agency has on file when the address contains a different street number, street name or zip code.
Receipt of a notice subjects the user who ordered the credit report to determine whether the credit report correctly relates to the named buyer or tenant applicant.
Importantly, the rule only applies to address discrepancy notices received by users from the three existing NCRAs — either directly or through a third party acting on their behalf. NCRAs include:
- Experian;
- Equifax; and
- [15 USC §1681a(p)]
Again, the address discrepancy rule only applies to consumer credit reports, thus exempting credit reports for business mortgage lenders and commercial landlords.
However, best practice by anyone relying on a credit report is to first confirm an applicant’s address, whether or not you receive an address discrepancy notice from any credit reporting agency for any type of mortgage or rental. Receipt of the notice indicates an ambiguity exists concerning the applicability of the credit report to the applicant.
Further, address discrepancy notices are red flags an MLO or MLB company evaluates as part of their identity theft prevention protocols.
Responding to address discrepancies
Users of credit reports need to create office management policies to reasonably establish and ensure a credit report relates to their applicant upon receipt of an address discrepancy notice.
Policies to confirm the credit report is for the applicant include:
- verifying the accuracy of the information in the credit report with the applicant themselves; or
- comparing information in the consumer credit report with information the user:
- typically uses as part of their customer identification program to verify an applicant’s identity;
- maintains in its records, such as mortgage applications; and
- obtains from third-party sources, such as the applicant’s real estate agent. [16 CFR §641.1(c)]
Reasonable office management procedures to confirm a credit report properly identifies the applicant ensure the user has correct credit information for that buyer or tenant applicant — preventing them from issuing a mortgage or entering into a rental or lease agreement premised on someone else’s credit information.
When a credit report user determines the report they received does not relate to their applicant, the user then runs the applicant’s information again to pull the correct credit report and resolve any further discrepancies with the applicant.
Rules for users who report credit information
In addition to the above requirements, consumer credit report users who regularly report information to credit agencies are subject to address reporting requirements.
A user who confirms an applicant’s address is different than the one given in the consumer credit report which prompted the discrepancy only needs to submit the correct address to the credit reporting agency that issued the notice when:
- the credit reporting agency is an NCRA (or a third party acting on behalf of one);
- the user holds a reasonable belief the credit report is that of the identified applicant;
- the user establishes a continuing relationship with the applicant; and
- the user regularly furnishes information to the credit reporting agency in the ordinary course of business. [16 CFR §641.1(d)(1)]
Editor’s note — The requirement to report a correct address will most often apply to lenders and banks, not property managers, landlords or MLOs and MLBs who merely originate mortgages. However, an MLB who services mortgages and regularly reports a homebuyer’s credit information will need to include the corrected address in the information they report.
Office management policies set by a user (who reports) for confirming a consumer’s address and providing a corrected address to credit reporting agencies include:
- verifying the address with the applicant;
- reviewing their own records they have on the applicant; or
- other reasonable means. [16 CFR §641.1(d)(2)]
The user who reports to credit reporting agencies submits a confirmed address as part of the information they regularly provide to those agencies on an applicant (e.g., a buyer’s credit limit, delinquencies and late payments).
Following these procedures under the address discrepancy rule enhances the accuracy of credit reports used by all, and further ensures an MLO, MLB, landlord or property manager is alerted when they do not have the correct credit report for an applicant.
Noncompliance penalties
Credit report users for consumer mortgages and residential tenancies who do not comply with address discrepancy rules are subject to action by the FTC. The maximum penalty that may be recovered by the FTC is $3,500 per violation. [15 USC §1681s(a)(2)(A); 17 CFR §1.98]
The FTC also has the authority to:
- investigate the person or business in violation;
- enforce compliance through issuing procedural rules to be adopted for detecting suspicious activity; and
- require the filing of reports, the production of documents and the appearance of witnesses. [15 USC §1681s(a)(a)]
Credit report users are also exposed to litigation from the Consumer Financial Protection Bureau (CFPB), state government and consumers.
