Code 18 -Adverse Action Form

Question: What would be the course of action when an invalid denial reason was provided to the consumer? This reason was the only one listed on the adverse action form.

For example: An unsecured loan request for debt consolidation that was denied by using Code 18- Value or type of collateral insufficient. The consumer(s) had good credit scores with no derogatory credit.

I found this issue in routine audit/monitoring and clarified my intrepretation of the invalid reason with the OCC. The officer states he will not do an "unsecured" note for debt consolidation in the amount requested. Debt to income or Insufficient income are not valid reasons either.

My suggestion was go back to loan policy and review policy on this issue. Other than that, I think the officer may need to offer credit to this consumer? Any thoughts?

We always used , other - insufficient income for amount of unsecured credit requested.
If all of the unsecured was not being consolidated, we used, sufficient unsecured available

Does "he" not do these loans, or is it bank policy not to do these loans?

If the bank's policy allows for such loans then I agree the applicant should be offered credit if they meet the underwriting criteria.

This denial reason for an unsecured credit request is a very hot topic for FDIC examiners.

First, if no collateral was offered, it isn't insufficient. You know that. Why not, "Other: Sufficient collateral would be required for the amount and time requested".

Your loan policy should support the terms and conditions. If it doesn't, I'd change it. You might also educate the lenders (emphasis on plural if you have more than one) so they are on the sheet of music. There may be additional reasons which should be listed.

I was not a proponent of consolidation loans when I worked the loan desk and I would not tell a lender they need to make these deals if they are not comfortable with them. But the loan policy and your judgmental system of approving them should support this so decisions are made in a consistent manner.

Thank you for the posts.