Commercial Loans & ECOA

From an internal file review position (and external by 3rd party auditors) – I wanted to ask what your thoughts are on ECOA and 30 day requirements for notice of action (affirmative or negative).

Our bank does not utilize a commercial application. I know that for business loans, approval or denial may be issued verbally.

If we have a commercial loan that takes over 30 days to close from the date of approval, what is the requirement for proof that the customer was given verbal notice of affirmative action (one that may acknowledge the delay in closing)?

If the standard is to have the lender say that yes, the customer was told their loan was approved within the initial 30 days, and it takes 45 days to close (as an example) – but put nothing in file such as a memo, or notation that the notice was made – what is our burden of proof if we are asked to provide/prove it by an auditor?

The good thing about approvals is that, by logic, you know a loan officer told the customer they were approved. Sure, they should document the communication, but I have never had an examiner tell me to prove it. My argument would be, what kind of loan officer would approve a loan and not contact the customer. Loan officers get paid to close the loan, not just approve it.

The requirement is to notify the applicant within the allotted time. If the loan officer notifies the applicant 31 days after receiving a completed application of the credit decision they have violated ECOA notification requirements whether the loan was approved or denied. The notification to the applicant should be documented, whether the loan closes or not.

With that said notification for a business credit request is a bit more lenient. Review 202.9(a)(3). It discusses the requirements for businesses with revenues below one million and those with revenues above one million. But the notification should still be documented.