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Mortgage Lead Generator Licensing & Consumer Finance Lead Generator Licensing

It is important for companies involved in the mortgage and finance lead generation business to be aware that their solicitation activities may trigger the need to be licensed under state mortgage and finance licensing laws. Those companies should take measures to ensure that they are in compliance with state and federal lending and licensing laws.

In order to determine whether or not a state license is required for lead generators, a two-step analysis is required. First, it is necessary to carefully read state licensing statutes and regulations. Most states define the activities of a mortgage broker, mortgage banker, or consumer finance company very broadly, using many all-encompassing action verbs (e.g. soliciting, processing, placing, negotiating, assisting, etc.). “Soliciting” or “assisting” customers triggers the license requirement.

Second, it is then necessary to contact each state regulator and request a written opinion as to licensing requirements based upon the specific business model of the lead generator. Every lead generator conducts its business differently, requiring that a new analysis be required for each mortgage lead generator. In the alternate, the advice and opinion of a regulatory compliance attorney should be obtained.

Should a mortgage license or finance license be required, lead generators will be subject to the same laws, requirements, and restrictions as companies that originate such loans.

After a licensing determination has been made, it is then necessary to determine which state and federal lending laws are applicable to the proposed lead generation activity.

Notwithstanding the above, it is very interesting to note that, in the past few years, the mortgage industry, itself, has been regulating lead generators even more intensely than the mortgage regulators themselves. What is happening in the industry is that mortgage bankers and brokers are now requiring that lead generators be licensed in all states where the lead generators obtain leads. Lead generator mortgage licensing has become a prerequisite to doing business with mortgage company clients. This is true regardless of whether the lead generator actually needs a state license or not, based upon an analysis of its business model.

Finally, in recent years we have also seen lead generators, which have gone through the process of obtaining their own state licensing, actively informing state regulators of lead generator competitors which have not obtained state licensing. Lead generators, which have spent hundreds of thousands of dollars on nationwide state licensing, wish to level the playing field and force non-licensed lead generators to obtain their own state licenses. When a state regulator is alerted to the fact that a lead generator is unlicensed, the consequences for that lead generator can be substantial – attorney general lawsuits, massive fines, cease and desist orders, etc.

Because of the large downside risks associated with conducting an unlicensed lead generation business, and with not being in compliance with state and federal lending and licensing laws, it is critical that each mortgage lead generator seek the advice of finance industry counsel before engaging in mortgage lead generation or consumer finance lead generation activity in any state.

The Finance Industry’s Licensing Authority Since 1996