Loan application denial, commercial property, and ECOA
Question: We are denying a loan application from an individual who wanted to purchase a commercial building. The individual has not formed a corporation or any other business entity. Our commercial lender is trying to say that this application isn't subject to ECOA adverse action requirements because the borrower is not a business and is not borrowing as a consumer. What should I tell him?
Answer: Tell him nice try, but no cigar. There is no such thing as the kind of gap he is dreaming up. All denials - to whomever for whatever - are covered by ECOA notification rules. The only question is not coverage but which type of notice to send. In this situation, you have a business purpose loan and should follow the small business notification rules. If there is any doubt, you should be safe following the consumer notification rules. But whatever category you decide the application is in, you must notify the applicant.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 14, 1/04
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