A few years ago, a mega-stockbroker used a 3rd party to underwrite loans. The financial adviser would get the mortgage company on the phone with the customer, then get permission to act on behalf of the customer. Many times, there would be issues, such as credit, collateral value, etc. which was relayed to the financial consultant. Rather than 'offending” their 7-8 figure client with a denial and adverse action, the financial adviser would “withdraw” the loan on the customer's behalf.
All was well and good until the regulator (FDIC) noticed that the withdrawals were higher than normal. After looking at some of the files, they ordered a file search, going back 25 months. After sample reviews of impacted loans by the regulators, and in addition to a healthy fine, FDIC required that where there was sufficient information for a denial, that each of those customers get an adverse action notice.
Direct and indirect cost – huge,
Customer ill-will in receiving an AAN after the financial adviser gave them a story – huge,
Reputational loss with the examiners – even worse.
Integrity. With it, nothing else matters. Without it, nothing else matters.