Key Provisions in Loan Marketing and Servicing Agreements

By Mark Warner

Lets say you want to apply for a loan, be it for a house, a car, or to pay for school. Very often, the company you deal with, either through the car dealership, the mortgage company, or your school is not the bank that is actually processing the loan. Rather, banks like to hire marketing and servicing companies to, as the name would suggest, market and service loans. This includes advertising the loan product, printing out loan applications, and receiving loan payments. The bank, however, is still making all decisions regarding the loans, such whether or not you are approved, and if so, what the terms and conditions of the loan may be. Let's take a closer look at a typical Loan Marketing and Servicing Agreement between a marketing and servicing company, whom we shall creatively call Marketing and Servicing, Inc., and a Bank.

The first provision of such an agreement will state clearly and unequivocally that the

Bank shall make all decisions regarding the loans. At no time shall Marketing and Servicing, Inc. ("servicer") imply or suggest that the loans are made or approved by servicer or that servicer can improve an applicant's prospect of obtaining a loan. At the same time, the agreement could also provide Marketing and Servicing, Inc. a "right to purchase" any loan the Bank wishes to divest itself from. If this is the case, then if Bank wishes to sell or transfer any Loan to a third party, Marketing and Servicing, Inc. may wish to reserve a right of first refusal to purchase, receive or participate in the loans.

The second provision will want to cover Marketing and Servicing, Inc.'s general duties. This provision should authorize Marketing and Servicing, Inc. to act as the fiscal agent for the bank, and to establish retail stores where loan applicants may submit loan applications and where borrowers may execute and deliver loan documentation and repay loans. The agreement is thus creating a traditional "agency" relationship between the Bank, the principal, and Marketing and Servicing, Inc., the agent, who is given explicit authority to act on behalf of the bank in respect to certain functions.

The next provision will cover Marketing and Servicing, Inc.'s duties in respect to the marketing of the loans. The Bank will authorizes Marketing and Servicing, Inc. to market the loans using the name, trade name, and logo of bank in connection with such marketing. Marketing and Servicing, Inc. may also advertise as it sees fit as long as said advertisements appropriately identify bank as the lender. The Bank shall exercise no authority or control over Advance America's employees or methods of operation, except as set forth in this agreement.

Finally, the agreement must set forth Marketing and Servicing, Inc.'s duties in respect to servicing of the loan applications. Again, the bank will be responsible for making the final determinations regarding loans, and Marketing and Servicing, Inc. will be the middleman receiving and processing all loan applications. If applicable, Marketing and Servicing, Inc. may also provide collection services to the bank and shall make all reasonable efforts to collect on unpaid loans.

These would be the typical provisions found in a Loan Marketing and Servicing Agreement. Hopefully, this article has shed some light on how this common arrangement works in practice.

Mark Warner is a Servicing Agreement Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents online drafted by the top law firms in the US that you can download, edit and print. Search For Free at RealDealDocs.com.