2009 SLA Private Loan Series: What Is the Meaning of "Instant Credit Response?"

Yes, we have all seen these marketing claims from private student lenders before:

• "Apply now and receive an instant credit decision"
• "Receive a preliminary decision for a loan within minutes of applying online"
• "Easy online application with fast credit decision"

When it comes to the application process, consumers clearly value speed and immediacy when it comes to the credit decisioning.  So, what really does happen after the student borrower and his/her cosigner dot the "i"s and cross the "t"s on their online private loan application?   To what extent do lenders clearly and completely disclose information on interest rates and fees after they conditionally approve a loan? (Note:  The Federal Reserve's Regulation Z includes specifics about items that lenders will be required to disclose upon loan approval)

There was quite a bit of variability when it came to credit decisioning and disclosure of terms and conditions for the approved loans.  Two observations that came out of this analysis were:

• None of the lenders immediately provided an online conditional approval letter in what could properly be called "plain English:"  "As of today, the starting interest rate on your variable-rate loan is 7.0%, based upon a Prime Rate of 3.25% and a loan margin of 3.75%."
• While many lenders claim "immediate credit decision", few actually provide BOTH an immediate credit decision and specific details about the interest rate and fees on the loan.  

Here were the five processes that I documented during my "shopping spree:" 

• Two lenders immediately provided a conditional approval letter online which included specific information about the interest rate margin on my loan as well as any origination or repayment fees:
  • Citibank
    • "The Margin (as defined in your Master Promissory Note) for the loan that your requested will be 7.0%.  The Variable Rate (as defined in your MPN) for the loan that you requested will be Prime Rate + 7.0%.  The Variable Rate is the sum of the index (as defined in your MPN) plus or minus the Margin.  A Loan Fee is defined in the MPN in the amount of 5% of each disbursement will be added to the principal amount of your loan at disbursement. 
  • Wells Fargo
    • "We are pleased to inform you that you have met initial eligibility requirements to be a cosigner on a Wells Fargo Collegiate Loan for [Insert student's name].  While final approval will be based on the information submitted to us, based on the credit analysis of all applications, you qualify for an interest rate of Index + 6.99%"
      • Wells also provided an A.P.R. example, assuming interest rate of 11.74%. 

• One lender immediately provided a statement to the effect that the loan had been conditionally approved with NO DETAILS regarding interest rate margins or fees
  • Chase:  see earlier post for details regarding Chase application process

• One lender did not provide an immediate response since I had applied after business hours:
  
  • Discover:  I made the mistake of applying after-hours and received this message:
    • "We were not able to complete the credit decision process.  Your cosigner's credit will be reviewed by our customer support staff during our normal business hours of 7:00am - 5:00pm CST, Monday-Friday. 
    • I called the following morning and the customer service representative provided me with a verbal confirmation of the interest rate on my loan
    • I understand the company's typical process to be the following:
      • Perform instant credit check for online applications with some set of applications queued for manual review.
      • Send conditional approval letter via mail, if application approved.
      • Disclose the rates verbally and can also send an email confirmation of the interest rate margin upon request, for example if they do not want to wait for the conditional approval letter in the mail.

• Two lenders (both serviced by AES) provided a statement that loan had been conditionally approved and provided specific interest rate margin details in the promissory note, which was available for immediate viewing.
  • PNC
    
    • Did not provide current information on their Index, which is the a three month average of 1-month LIBOR rates
  • SunTrust
    •  "Congratulations! You are conditionally approved."
    • "You will receive an email from AES within 24-48 hours concerning the calculation of your interest rate."

• Two lenders provided an immediate message that loan had been placed in "Pending Status"
  • U.S. Bank provided the following message after I had submitted my application:
    • "Your application is in a "Pending" status.  You may be required to provide additional information before we can complete the application process.  Please contact our student loan service center at 800-233-7824 or usbank@glhec.org"
    • When I called the service center the next day, I was told that my nephew would need to provide a copy of his driver's license and Social Security card since he had a "thin file" account.  This was attributed to his lack of a credit history and the representative mentioned that this was fairly commonplace for many students applying for loans. 

• Sallie Mae:  for detailed description of Sallie Mae credit review process, see earlier post
  • "Credit decision:  Pending Review"

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