Topic: Equal Credit Opportunity Act (ECOA)
-
We are considering providing perks (such as gift cards or concert tickets) to our mortgage loan customers who are first-time homebuyers. Are there any fair lending concerns with this type of program? Would we have to provide perks to all borrowers, not just first-time homebuyers?
—
by
Assuming that the underlying loan program is not otherwise discriminatory, we do not believe that offering gift cards or concert tickets to a subset of your mortgage loan customers would be found to violate fair lending laws, but we do recommend monitoring the promotion, documenting your business reasons for targeting first-time homebuyers and remaining sensitive…
-
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)?
—
by
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…
-
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even though it is not required under Regulation B. The reason given for the denial in such notices is “file withdrawn,” regardless of whether a credit decision had been made at the time of the withdrawal.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worksheet that includes certain fields relevant to HMDA reporting which distinguish between an application that is withdrawn prior to a credit decision and an application that is “approved, not accepted.”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
We believe your bank may continue to provide voluntary adverse action notices with the notation “file withdrawn” to applicants whose loan applications are withdrawn at any point during the credit decision process. You are correct that Regulation B does not require a lender to send an adverse action notice when an application is withdrawn, regardless…
-
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?
—
by
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…
-
We have a policy that a customer’s credit report is valid for six months, so we do not pull a new report or charge the customer if they apply for an additional loan within that six-month period. Is it permissible to provide this benefit to returning customers when new customers applying for loans are charged for a credit report? Also, is it permissible for us to allow a loan officer to choose not to charge a new customer for a credit report for various reasons?
—
by
Yes, we believe it is permissible to reuse a credit report, allowing a returning customer to avoid the fee for a new report within the six-month timeframe set by your bank’s policy. The FCRA permits a lender to reuse a credit report for the purpose of reviewing a subsequent credit application (which is a “permissible…
-
Our bank does not offer a business checking account that pays interest. However, we would like to create a checking account that pays monthly interest for a commercial customer that is a property manager. Are there any restrictions we need to be aware of, and would we need to offer this product to other customers? The customer would open separate accounts for the various properties it manages and would be holding funds related to the properties.
—
by
We are not aware of any Illinois or federal law prohibiting a bank from offering higher deposit interest rates to a particular business customer, provided that the customer is not a bank insider. The Dodd-Frank Act removed the prohibition on paying interest on ordinary demand deposit accounts held by businesses, and since this commercial customer…
-
We have a borrower with two commercial loans secured by first liens on residential rental property. When the borrower fell behind on her payments last year, we allowed her to make interest-only payments for one month and then resume making the regular principal and interest payments. The arrangement was documented with a letter signed by the borrower. The borrower recently fell behind again, and we are contemplating allowing her to make interest-only payments for three months, after which she will resume making full principal and interest payments. We also would document this arrangement with a letter signed by the borrower. Are there any regulatory implications with respect to modifying a loan repayment in this fashion?
—
by
We are not aware of any significant regulatory implications with this transaction, although your bank may be required to provide a copy of an appraisal or other written valuation if one was prepared in connection with the customer’s request for temporarily modifying the loan repayment terms (which we understand is not the case here). Resources…
-
We have a construction-only loan for the construction of a dwelling, and the loan has a twelve-month term. We have a second lien on the land underlying the dwelling and a first lien on the dwelling itself. Do the Equal Credit Opportunity Act (ECOA) appraisal requirements apply?
—
by
Yes, we believe that the ECOA appraisal requirements do apply to this loan. The ECOA appraisal requirements apply to any loan “secured by a first lien on a dwelling,” and there is no exception for construction or temporary loans. For resources related to our guidance, please see: Regulation B, 12 CFR 1002.14(a) (“A creditor shall…
-
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?
—
by
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…
-
Our new loan origination software requires us to assign one Illinois law to each type of loan to help the software identify the permissible interest rate for the loan product. For consumer non-real estate loans, should we assign the Interest Act or the Consumer Installment Loan Act? For home equity lines of credit (HELOCs), should we assign the Interest Act or the Financial Services Development Act? Also, does the Interest Act permit us to charge commercial real estate borrowers a fee for real estate valuations completed by a bank staff member?
—
by
We are hesitant to answer your question to the extent that it might imply we believe attributing a single law to a loan type, even if only with respect to interest rates, constitutes a best practice (or even an acceptable practice in some circumstances). Having said that, the Consumer Installment Loan Act does not apply…