Question: What is a "Pre-existing Business Relationship" and its effect on affiliate marketing?
Answer: At its core, the pre-existing business relationship is a relationship between a “person” or “persons” (i.e.,residential mortgage lender and originators) and consumers, based on these three rudimentary criteria:
1. A financial contract between the person and the consumer that is in force on the date a solicitation covered by the affiliate marketing provisions is sent to the consumer;
2. The consumer’s purchase, sale, or lease of the person’s goods or services, or a financial transaction (including holding an active account or a policy in force or having another continuing relationship) between the person and the consumer during the eighteen-month period immediately preceding the date a solicitation covered by the affiliate marketing provisions is sent to the consumer; or
3. An inquiry or application by the consumer regarding a product or service offered by the person during the three-month period immediately preceding the date a solicitation covered by the affiliate marketing provisions is sent to the consumer.
There are essentially two scenarios that come under scrutiny: (1) where there is a pre-existing business relationship, and (2) where there is no pre-existing business relationship. [16 CFR § 680.3(j)(i)-(iii); 16 CFR § 680.3(j)(2)-(3)]
A pre-existing business relationship is where a consumer:
►Has an existing loan account with a creditor—the creditor has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services. (A solicitation is the intent to encourage the consumer to purchase or obtain products or services.)
►Obtained a mortgage from a mortgage lender, but refinanced the mortgage loan with a different lender when the mortgage loan came due - the first mortgage lender has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date the outstanding balance of the loan is paid and the loan is closed.
►Obtains a mortgage, the mortgage lender has a pre-existing business relationship with the consumer.
►If the mortgage lender sells the consumer's entire loan to an investor, the mortgage lender has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date it sells the loan, and the investor has a pre-existing business relationship with the consumer upon purchasing the loan.
►If the mortgage lender sells a fractional interest in the consumer's loan to an investor but also retains an ownership interest in the loan, the mortgage lender continues to have a pre-existing business relationship with the consumer, but the investor does not have a pre-existing business relationship with the consumer.
►If the mortgage lender retains ownership of the loan, but sells ownership of the servicing rights to the consumer's loan, the mortgage lender continues to have a pre-existing business relationship with the consumer. (The purchaser of the servicing rights also has a pre-existing business relationship with the consumer as of the date it purchases ownership of the servicing rights, but only if it collects payments from or otherwise deals directly with the consumer on a continuing basis.)
►Applies to a creditor for a product or service that it offers, but does not obtain a product or service from or enter into a financial contract or transaction with the creditor - the creditor has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the application.
►Makes a telephone inquiry to a creditor about its products or services and provides contact information to the creditor, but does not obtain a product or service from or enter into a financial contract or transaction with the creditor - the creditor has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry.
►Makes an inquiry to a creditor by e-mail about its products or services, but does not obtain a product or service from or enter into a financial contract or transaction with the creditor - the creditor has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry.
►Has an existing relationship with a creditor that is part of a group of affiliated companies, makes a telephone call to the centralized call center for the group of affiliated companies to inquire about products or services offered by the insurance affiliate, and provides contact information to the call center, the call constituting an inquiry to the insurance affiliate that offers those products or services - the insurance affiliate has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from its affiliated creditor to make solicitations to the consumer about its products or services for three months after the date of the inquiry.
A pre-existing business relationship does not occur where a consumer:
►Makes a telephone call to a centralized call center for a group of affiliated companies to inquire about the consumer's existing account with a creditor - the call does not constitute an inquiry to any affiliate other than the creditor that holds the consumer's account and does not establish a pre-existing business relationship between the consumer and any affiliate of the account-holding creditor.
►Has a loan account with a creditor, makes a telephone call to an affiliate of the creditor to ask about the affiliate's retail locations and hours, but does not make an inquiry about the affiliate's products or services - the call does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate. (Also, the affiliate's capture of the consumer's telephone number does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate.)
►Makes a telephone call to a creditor in response to an advertisement that offers a free promotional item to consumers who call a toll-free number, but the advertisement does not indicate that creditor's products or services will be marketed to consumers who call in response - the call does not create a pre-existing business relationship between the consumer and the creditor because the consumer has not made an inquiry about a product or service offered by the creditor, but has merely responded to an offer for a free promotional item.
Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456, by e-mail at
[email protected], or visit www.LendersComplianceGroup.com or www.BrokersComplianceGroup.com.
