IBA Compliance Connection

Your go to source for compliance!

Our commercial loan department has opted to provide adverse action notices to customers who withdraw their applications even though it is not required under Regulation B. The reason given for the denial in such notices is “file withdrawn,” regardless of whether a credit decision had been made at the time of the withdrawal. Is this appropriate? For our internal recordkeeping and training purposes, we use a loan documentation worksheet that includes certain fields relevant to HMDA reporting which distinguish between an application that is withdrawn prior to a credit decision and an application that is “approved, not accepted.”

—

by

admin

We believe your bank may continue to provide voluntary adverse action notices with the notation “file withdrawn” to applicants whose loan applications are withdrawn at any point during the credit decision process.

You are correct that Regulation B does not require a lender to send an adverse action notice when an application is withdrawn, regardless of whether the applicant expressly withdraws their application or fails to inquire about the status of the application after it is approved. Consequently, we do not believe that your bank needs to send an adverse action notice that distinguishes between loans that are withdrawn prior to a credit decision and loans that are withdrawn after approval.

However, for your internal reporting purposes, in order to properly file information for HMDA-reportable loan applications, we agree that it would be prudent to treat loan applications that are withdrawn before a credit decision differently than those withdrawn after approval of the application. For internal reporting purposes, if the loan applications are HMDA-reportable, the “Action Taken” data point distinguishes between applications that are “approved but not accepted” and those that are “withdrawn by the applicant.”

For this reason, we believe it would be prudent for your bank to continue to maintain internal records that distinguish between loans that are withdrawn by the applicant prior to a credit decision and those that are approved but not accepted, at least for HMDA-reportable loans.

For resources related to our guidance, please see:

  • Regulation B, 12 CFR 1002.9(a)(1) (“A creditor shall notify an applicant of action taken within:

i) 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application;

(ii) 30 days after taking adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section;

(iii) 30 days after taking adverse action on an existing account; or

(iv) 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.”)

  • Regulation B, 12 CFR 1002.9(e) (“When an applicant submits an application and the parties contemplate that the applicant will inquire about its status, if the creditor approves the application and the applicant has not inquired within 30 days after applying, the creditor may treat the application as withdrawn and need not comply with paragraph (a)(1) of this section.”)
     
  • Regulation B, Official Interpretations, Paragraph 9, Comment 2 (“When an applicant expressly withdraws a credit application, the creditor is not required to comply with the notification requirements under § 1002.9. (The creditor must comply, however, with the record retention requirements of the regulation. See § 1002.12(b)(3).)”)
     
  • Reportable HMDA Data: A Regulatory and Reporting Overview Reference Charge for HMDA Data Collected in 2019a (effective January 1, 2019) p. 23 (“ACTION TAKEN. Indicate the action taken on the covered loan or application by entering: . . . Code 2—Application approved but not accepted . . . Code 4—Application withdrawn by applicant . . .”)