Topic: Adverse Action Notices
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Our bank operates a mortgage company that purchases loans after they have closed through the correspondent lending channel. The loans close in the name of a third-party originator (TPO) after an underwriter at our mortgage company reviews the loan file and issues underwriting conditions to the TPO. If we deny a loan application, should our mortgage company issue an adverse action notice and list our regulator or should the TPO issue the notice and list its regulator? If our mortgage company issues the adverse action notice, should we reference the TPO on the notice?
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We believe that either your mortgage company or the TPO can issue the adverse action notice, and the notice should disclose each creditor involved in the adverse action decision. Regulation B provides that when a loan application is made on behalf of an applicant to more than one creditor and no credit is offered (or…
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In August 2022, the FDIC amended its Equal Housing Lender poster to reflect that the former Consumer Response Center had been renamed as the National Center for Consumer and Depositor Assistance. However, Regulation B’s adverse action notice information still references the Consumer Response Center. Should we continue to refer to the Consumer Response Center in adverse action notices? Also, does the Equal Housing Lender poster no longer have an image of a house at the top of the page?
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We recommend referencing the “Division of Depositor and Consumer Protection, National Center for Consumer and Depositor Assistance, Federal Deposit Insurance Corporation” on adverse action notices. The CFPB just today released a final rule amending Appendix A to Regulation B to change the contact information for the FDIC required in adverse action notices from “FDIC Consumer…
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We have an elderly deposit customer who we believe is gambling away most of their money, and we do not believe the gambling is the result of financial exploitation by a third party. We are worried that the customer may apply for a loan that they would be unable to repay because of their gambling. Can we report their gambling to a family member, or would this violate our customer’s financial privacy? Also, would we have a legitimate reason to deny their loan? On paper, this customer would qualify for a loan since their house is paid off and they have repaid their previous loans.
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No, we do not believe you may report your customer’s gambling to a family member, as this would violate Illinois and federal financial privacy protections. The Illinois Banking Act and Regulation P prohibit the disclosure of a customer’s financial records or financial information to a third party, unless an exception applies. Although there are exceptions…
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Are financial institutions required to open health savings accounts (HSAs) for individuals that apply for them, or can we follow our standard procedures for determining eligibility for checking and savings accounts? For example, we generally deny accounts to customers due to previous account closures. We would provide adverse action notices if information from a consumer report is used to deny the account.
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We are not aware of any law or regulation requiring banks to open HSAs for all individuals who apply for them, and we believe that you may follow your bank’s internal procedures for determining eligibility to open a new account — including providing adverse action notices when required. While the IRS has established requirements that…
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Do we need to include the part of a credit report disclosing an individual’s credit score when sending an adverse action notice? In certain situations, we use Form C-2 from Appendix C of Regulation B as our adverse action notice, and we want to make sure that we do not have to provide any additional documentation when using the form. But if we don’t use Form C-2, are there any situations where we would have to send an individual this part of the credit report along with an adverse action notice?
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No, we do not recommend separately including any part of a consumer report with an adverse action notice. If the adverse action was based on information from a consumer report, you must provide certain information about the consumer report in the adverse action notice, and if the consumer’s credit score was a factor in the…
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Does an adverse action notice need to be signed by a bank employee, and if so, must the employee have loan authority?
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No, an adverse action notice does not need to be signed by a bank employee — whether the adverse action notice is being sent in accordance with the Equal Credit Opportunity Act (ECOA) and its implementing regulation (Regulation B) or the Fair Credit Reporting Act (FCRA). Regulation B requires that an adverse action notice contain…
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Are joint (merged) credit reports allowed for joint consumer loans? For example, if two applicants have indicated their intent to jointly apply for credit, and each applicant’s income and assets will be used as a basis for our underwriting, may we obtain a joint credit report? If so, are there any privacy concerns regarding providing a joint report to two parties, and do different rules apply to married applicants? Also, Fannie Mae and Freddie Mac require “tri-merge” credit reports — does this pose any concerns?
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Yes, you may obtain a merged credit report for co-applicants, in which vendors merge the information from two individuals’ credit reports — subject to the caveat that there may be some fair lending concerns if your vendor offers joint reports for married couples at a lower cost than separate credit reports for unmarried individuals. The…
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A customer applied for credit, and we denied the application. The customer reapplied with a new co-applicant, and we denied the second application. Do we need to send a second denial letter to both the original applicant and the new co-applicant?
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We believe you must send an adverse action notice to the original applicant, and if the denial was based in part on information in the co-applicant’s consumer report, to the co-applicant as well. The Equal Credit Opportunity Act (ECOA) and Regulation B adverse action requirements apply to the “applicant” for credit. When there are multiple…
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If a customer applies for a loan at our bank but does not qualify for any of the loan products we offer, we may refer the customer to a separate mortgage provider (not affiliated with our bank) that offers certain products that we do not, such as VA and FHA loans. When this occurs, should we send the customer a counteroffer or an adverse action notice? Also, should we include these applications on our Home Mortgage Disclosure Act loan application register (HMDA LAR)?
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If your bank receives a completed loan application and makes a determination that the applicant does not qualify for any of the loan products your bank offers, you should send the applicant an adverse action notice. Additionally, if your bank is a HMDA reporter, you should report the application on the HMDA LAR, provided the…
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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.”
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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…