Topic: Equal Credit Opportunity Act (ECOA)
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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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It is our practice to order appraisals for collateral monitoring during the term of our residential loans, which we do not charge the borrowers for. When loans are renewed, we reuse these existing appraisals if they are less than 12 months old. Under Regulation B, can we charge a fee for providing these appraisals to borrowers for their renewals?
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Yes, in our view, you may charge a fee when you provide a borrower with a previously developed appraisal for a loan renewal, provided that the fee is reasonable and used to reimburse you for the cost of that appraisal. Regulation B permits creditors to charge “a reasonable fee to reimburse the creditor for the…
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We are considering offering local civil service employees and teachers a discounted mortgage loan origination fee. This would not be a short-term advertising campaign, but a long-term program to build loyalty with civil employees within our village. Would there be any fair lending or other regulatory concerns with this type of program? Could we include our village board members in the program?
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Yes, you may run into fair lending concerns regarding this type of discount program. Neither federal nor state anti-discrimination laws treat “occupation” as a protected class. In other words, you are not prohibited from giving preferential treatment to an individual based their occupation. However, such a policy may create a fair lending challenge if it…
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Can a bank have a policy not to open accounts for non-U.S. citizens, even if they have documentation establishing their legal right to work in this country?
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While we are not aware of any federal or Illinois law that expressly prohibits a policy to not open deposit accounts based on the non-citizenship status of a person, some courts or regulators still could consider such a policy to constitute unlawful discrimination. The federal Civil Rights Act states that “all persons within the jurisdiction…
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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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Are we permitted to retain copies of driver’s licenses in our files for deposit accounts? Should we be retaining these copies?
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Yes, we believe that you may retain copies of driver’s licenses in deposit account files, although it is not required. There may be some risk when retaining copies of driver’s licenses or other IDs in loan files or with loan applications, as we discuss below, but those risks do not apply to deposit account files.…
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We are considering not offering military service members any of the products covered by the revised Military Lending Act, but military status is a protected class in Illinois. Does the Military Lending Act preempt Illinois fair lending laws? If there is no preemption, can we avoid fair lending issues by declining to offer MLA-covered products to all customers?
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No, the Military Lending Act (MLA) does not preempt the Illinois Human Rights Act, which protects borrowers based on their military status. The MLA preempts inconsistent state laws and regulations, but not state laws or regulations that provide service members more protection. In this case, the Illinois law provides broader protection for military members than…
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For a residential mortgage loan made to an Illinois land trust that is secured by residential property held in the trust (where our collateral is a first lien on the assignment of the beneficial interest in the land trust), does Regulation B require us to provide an appraisal notice and copy of the appraisal?
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Yes, we believe that you should provide a copy of the appraisal and appraisal notice to the land trustee for a loan secured by an assignment of the beneficial interest in the land trust, provided that the property held in the land trust is a dwelling (defined in Regulation B as a residential structure with…
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Can we impose higher interest rates and shorter loan terms on loans for manufactured homes? Or would this be considered redlining or disparate treatment?
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Yes, we believe that you may vary interest rates and loan terms for loans secured by manufactured homes, provided that these policies are rooted in valid business considerations that have been carefully documented. We recommend monitoring your manufactured home loans for signs of a disparate impact on protected classes and geographical areas (for example, where…
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When a loan is up for renewal, are we required to obtain evidence of joint intent? Or is that required only at the initial application?
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Yes, Regulation B requires creditors to collect evidence of joint intent anytime there is an application for an extension of credit, including an application for a renewal. Regulation B defines the term “extension of credit” to include a “refinancing or other renewal of credit,” as well as “the continuance of existing credit without any special effort to collect…