Topic: Adverse Action Notices
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If we make a counteroffer on a consumer loan application, what type of notice should we provide, and what are the timing requirements? We have the options of sending a denial notice, a notice of an application approved but not accepted, etc.
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When making a counteroffer to a loan applicant, Regulation B provides two options for providing an adverse action notice. One option is to provide a counteroffer combined with an adverse action within 30 days after receiving a completed loan application. The other option is to provide a counteroffer without including an adverse action notice; after…
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We have an application for a home equity line of credit (HELOC) from a longstanding customer, whose debt-to-income (DTI) ratio exceeds 40%. We are willing to make the loan, but we want the customer to use the loan proceeds to pay off and close a credit card account to improve his DTI ratio after closing. Can we add a provision to the loan agreement requiring the customer to pay off and close the credit card account? Also, would this answer apply to other types of consumer-purpose loans?
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Yes, we believe you may add a provision to your HELOC agreement that requires the customer to pay off and close a credit card account (we do recommend consulting bank counsel when drafting this change to your agreement). The same answer would apply equally to other types of consumer-purpose loans (including our recommendation to consult…
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We closed on a mortgage loan refinancing on July 1, and the borrower asked us to lower the interest rate on July 5. We refused, and the borrower is threatening to rescind the transaction on the last day of the right of rescission period — July 6. If the borrower reapplies for the refinancing after rescinding, can we reject the customer’s application?
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Yes, we believe that you may reject the customer’s application, which will require you to provide an appropriate adverse action notice. Regulation B does not prohibit a creditor from rejecting an applicant due to the applicant’s previous exercise of the right of rescission. Regulation B permits creditors to consider “any information obtained” in connection with…
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Can we reject a loan application because the applicant is unable to show that he is a legal resident alien? The applicant stated on his application that he is a legal resident alien, but he later told us verbally that he is an “illegal immigrant.”
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Yes, we believe that you may reject this application for a number of reasons, and this decision would not violate the Equal Credit Opportunity Act and Regulation B’s prohibition of discrimination in loan decisions. We do recommend carefully documenting your reasons for rejecting the application and retaining a written account of the conversation in which…
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Are we required to send adverse action notices to all joint applications, or just to the primary applicant? We pull credit reports on all credit applicants.
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You should provide all of the applicants with adverse action notices, even if they had applied jointly with other applicants, because you have pulled credit reports on all of them. As explained in a helpful Federal Trade Commission (FTC) advisory opinion, while Regulation B requires that you send an adverse action notice to only the…
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We are thinking about offering “second chance” checking accounts in addition to our regular checking account products. The second chance accounts would have lower daily limits for ATM withdrawals and point of sale (POS) purchases, among other changes to our account terms. If we offer a customer a “second chance” checking account, do we need to send an adverse action notice?
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We believe that the Fair Credit Reporting Act (FCRA) would require your institution to provide adverse action notices to customers who apply for a checking account and are rejected, even if your institution offers the customer a “second chance” checking account with reduced limits and other features that differ from your normal checking accounts. The…
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We are interviewing a candidate for employment, and received authorization to examine the candidate’s credit report. Can we ask about collection items that appear on the report?
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We do not see any problems with asking an employment applicant about collections items on the applicant’s credit report. The Fair Credit Reporting Act (FCRA) expressly allows you to obtain a “consumer report” for any “employment purpose,” provided that you follow the disclosure and authorization requirements. 15 USC 1681b(b)(1). (Also, while not applicable here, note…
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If a loan application that we send out to secondary market investors is denied by one investor, but is later approved by another investor, do we need to send out an adverse action notice after the first denial?
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A creditor must notify an applicant of an adverse action within 30 days after receiving a completed application. 12 CFR 1002.9(a)(1)(i). Subsection 1002.9(g) governs situations where a bank sends applications to multiple investors (each of which is considered a “creditor” under the regulation’s definitions). It states that a creditor would not have to notify an…