Topic: Adverse Action Notices
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Our bank received a Chapter 7 bankruptcy notice for a customer who has a home equity line of credit (HELOC) with our bank. Can we decrease the available amount on the line, without terminating it, so that the customer may no longer access the funds? If so, what notification, if any, do we need to provide to the customer? Also, would we need to send an adverse action notice to the borrower, or does the bankruptcy prevent us from doing so?
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Yes, we believe that your bank may reduce a HELOC’s line of credit after receiving a Chapter 7 bankruptcy notice, subject to the notice requirements discussed below. Regulation Z generally prohibits creditors from reducing or freezing a HELOC’s credit limit unless an exception applies. One exception permits the reduction or freezing of a line of…
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When an individual applies to open a new account, we make an oral disclosure to the applicant that we are pulling their consumer credit report, which we obtain from ChexSystems. When an applicant’s request to open a new account is denied and we provide them with an in-person adverse action notice, we also make an oral disclosure that we pulled the applicant’s consumer credit report. Is this form of notification appropriate, or do we need to follow the notice requirements for investigative consumer reports? Should we obtain written permission from an applicant before pulling a consumer credit report?
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We believe the account opening notification procedures you described are appropriate. We are not aware of any initial disclosures required by the Fair Credit Reporting (FCRA) at the time of an account opening. When pulling a credit report from ChexSystems, your bank is not required to follow the FCRA’s notice requirements for investigative consumer reports,…
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We are using ChexSystems to review customers before they open a checking account. If a customer receives a “declined” rating from ChexSystems, we will not decline the customer’s request to open an account but will offer a different type of checking account designed for that rating. Do we need to obtain customer authorizations before using ChexSystems? Do we have any UDAAP concerns here?
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No, we do not believe that you need to obtain a customer’s authorization before obtaining a report from ChexSystems. Under the Fair Credit Reporting Act (FCRA), your bank has a permissible purpose to pull a consumer’s credit report when it has “a legitimate business need for the information in connection with a business transaction that…
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An individual applied for a consumer loan and was denied. We sent him an adverse action notice regarding our credit decision. Subsequently, his wife agreed to co-sign on the loan with him, so she added her name to his original application. We have decided to deny that application, too. Is the wife as a co-applicant entitled to an adverse action notice? If so, what should the notice contain?
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Yes, the wife is entitled to an adverse action notice, but only if your denial was based at least in part on the information in her consumer report (which appears to be the case here). Adverse action notices are required by two different laws. The Equal Credit Opportunity Act (ECOA) — as implemented by Regulation…
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Our bank is hiring for an open position. We pulled credit reports for the applicants (with their consent), without obtaining numerical credit scores. One applicant had a number of negative items on their report. The hiring employee emailed the applicant regarding the report, identifying the negative items and including verbiage from the report regarding those items. Would this violate the Fair Credit Reporting Act (FCRA)?
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No, we do not believe that sharing information from a job applicant’s credit report with that applicant would violate the FCRA. Nothing in the FCRA prohibits the sharing of information from a credit report with the consumer who is the subject of the report. In fact, the FCRA may require your bank to share some…
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We have a referral relationship with a leasing company for agricultural and commercial leases of equipment. The leasing company sends out an application on behalf of the applicant to multiple banks and will not fund a lease unless it has lined up a purchaser. The leasing company takes the application and then provides us with basic financial information about a potential lease to purchase, but we underwrite the lease ourselves as we would with any commercial credit application. We often ask the leasing company to obtain and send us more information from their applicant. We set the terms of the lease that will be acceptable to us, including the duration, the interest rate, and the down payment. When we decline to purchase a lease, do we need to send an adverse action notice to the leasing company, the commercial applicant, both or neither?
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As a creditor subject to Regulation B, your bank may fulfill its adverse action notice responsibilities either by sending the notices directly to the applicants or through the leasing company. Regulation B generally requires “creditors” to provide an adverse action notice to applicants whenever an adverse action is taken with respect to a credit application.…
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If our bank does not want to renew a closed-end residential real estate loan, can we notify the borrower after the loan matures? Or do we have to provide notice at some point before maturity?
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Unless your loan agreement creates a renewal notice obligation, we are not aware of any requirement to notify a borrower of your intent to not renew a loan, either before or after the loan’s maturity. However, we do note that Regulation B requires a lender to send an adverse action notice within 30 days after…
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Is there a record retention requirement for deposit account denials? When any potential customer asks to open a deposit account, we use an account screening service to determine whether to open the account. If we deny an account based on that screening, we provide the customer with our adverse action notification on the spot. Do we have to retain that notice? If so, for how long?
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We are not aware of any record retention requirement for deposit account denials. However, you may wish to follow the same record retention requirements in Regulation B regarding adverse action notices for credit applications. Under Regulation B, adverse action notices regarding credit applications must be retained for 25 months for consumers and 12 months for…
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Have there been any substantive changes to the Fair Credit Reporting Act (FCRA) or the Equal Credit Opportunity Act (ECOA) regarding adverse action notices that would affect using Regulation B’s model notices?
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No, there have not been any substantive changes to the FCRA or the ECOA regarding adverse action notices that would affect your use of the model forms in Regulation B. For resources related to our guidance, please see: Appendix C to Regulation B — Sample Notification Forms
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If a business loan applicant has under $1 million in revenues, is it proper to provide an adverse action notice verbally? Also, do you have any sample adverse action forms for commercial applicants?
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Yes, you may provide verbal notification of an adverse action to a business loan applicant. Regulation B permits creditors to provide businesses with adverse action notices “orally or in writing.” This rule applies to all business applicants, whether their annual gross revenues were less than or greater than $1 million. For a business with annual…