Topic: Equal Credit Opportunity Act (ECOA)
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How should we document joint intent to apply at the time of application as required under Regulation B for commercial and agricultural loan applications that are taken over the phone? Is it adequate to document joint intent with a credit memo that states who the borrowers and guarantors are? Additionally, if we properly document joint intent to apply, should we still obtain signatures evidencing the intent at closing?
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We believe that your bank may document joint intent by asking each joint applicant if he or she intends to apply for joint credit and then documenting each joint applicant’s intent once confirmed. Regulation B requires you to evidence each applicant’s intent to be a joint applicant “at the time of application” before requiring their…
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One of our board members would like us to offer a discounted interest rate on loans to essential workers. Would such a discount cause UDAAP, Regulation B, and Fair Lending concerns?
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Yes, we believe that a promotion offering a discounted interest rate on loans to essential workers could present some potential fair lending risk, particularly if the program is found to have a disparate impact on a protected class. While it is possible to mitigate some of the fair lending and related risks with careful documentation…
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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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We are preparing an internal valuation for a 1–4 family property for purposes of a mortgage loan. Our internal valuation is based on a prior appraisal of the property as well as price comparisons listed on a public real estate website. Are we required to provide a copy of this internal valuation to our customer, or would this type of valuation be exempt from this requirement?
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Yes, we believe you would be required to provide a copy of your internal valuation to your customer. Under Regulation B, a creditor must provide an applicant with “a copy of all appraisals and other written valuations developed in connection with and application for credit that is to be secured by a first lien on…
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Are there any discrimination concerns with asking some but not all customers to lower their face coverings before letting them enter a branch? We have some customers who are recognizable with face coverings on and some business customers who come in on an almost daily basis. We would write a policy that highlights these potential differences, and we would follow the policy consistently.
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A policy of asking some but not all customers to lower their face coverings before entering your bank poses some risk of potential discrimination issues. However, if you thoroughly document your basis for waiving this requirement for certain customers, follow the policy consistently, and follow the safety guidelines for requiring customers to lower their face…
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Our bank is going to begin accepting applications for commercial and agricultural loans and working with a new document vendor. What disclosures and terms and conditions are required for commercial and agricultural loans?
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While we cannot provide an exhaustive list of all necessary disclosures without knowing the details of the specific loans, we have highlighted some of the possibly applicable disclosure requirements below. Mortgage loans extended for primarily commercial or agricultural purposes are not subject to the TILA-RESPA Integrated Disclosure (TRID) requirements. However, certain disclosure requirements apply to…
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In Illinois, can a married couple be the joint owners of a sole proprietorship? We have married customers who operate a construction business as a sole proprietorship and state they are the joint owners of the business. The couple files a joint tax return with one Schedule C form listing the business as “John Smith d/b/a Smith Construction.” The couple has a business checking account with our bank on which John Smith and Sally Smith both are listed as owners and authorized signers. When signing loan documents on behalf of the business, the couple each would like to sign as an owner, with “John Smith d/b/a Smith Construction” listed as the borrower. Is this allowable? Our core processor would not allow us to input “John Smith or Sally Smith d/b/a Smith Construction.”
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Yes, a married couple may be joint owners of a sole proprietorship in Illinois. However, since sole proprietorships are not separate legal entities apart from their owners, we recommend requiring John and Sally Smith to sign the loan documents in their individual capacity, subject to the caveats discussed below. Under the Internal Revenue Code, two…
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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 we require minors to reach a certain age before we allow them to open a demand deposit account as a single owner, could we face any discrimination claims?
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No, we do not believe your bank would be subject to discrimination claims if you set a minimum age for minors to open an individual account, although we do recommend that you apply such a policy consistently. Generally, prohibitions of discrimination apply only to loan products, and, in that context, discrimination against an applicant based…
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Are joint applicants required to sign both the statement at the top of the Fannie Mae Uniform Residential Loan Application (Form 1003) and a separate statement of joint intent — or is signing only Form 1003 enough, since it provides that the “Borrower and Co-Borrower each agree that we intend to apply for joint credit”?
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We believe that your bank may rely solely on the joint applicants’ signatures at the top of Form 1003 as evidence of their intent to apply for joint credit. Although your bank may choose to have applicants for joint credit sign a separate document indicating their intent to apply jointly, we do not believe it…