Applications, Anyone?

No matter what your training topic, someone will ask you what an application is. Or they'll ask you a question about when communication with a consumer becomes an application. What makes this difficult is that each regulation has its own definition - or lack thereof.

The regulations' definitions of application and applicant exist primarily to determine regulatory coverage. They do not exist to make things easier for staff. In fact, these regulations don't "talk" to each other, leaving confusing gaps in how things work. When someone asks what an application is, you need to know the context of the question in order to give the correct answer. But the person asking the question is asking for something simpler (they think). They want a definitive answer that they can use all the time for everything. They don't want to go through the regulatory alphabet to figure it out.

How do you answer this - the real - question? The best way to handle this is to build the answers into the procedures. The real goal of training is not to enable staff to recite chapters and verses of regulations. (What would make us special if everyone could do that?) The real goal is to get the job done correctly. For that, procedures are more important than regulatory recitals. Set forth below are the different definitions or uses of "application" and "applicant" for lending regulations. We've identified the critical components and the reasons the definitions exist. Use this to test your training materials and procedures. Do they guide your staff to do the right thing? You may also find this useful to use in training.

Regulation B
An Application is an oral or written request for credit that is made in accordance with procedures you have established for the type of credit requested. A Completed Application is an application for which you have received all of the information that you regularly collect and consider in making a credit decision.

An Applicant is any person who requests or who has received credit from you. It includes a person who may become contractually liable for an extension of credit.

What this affects: These definitions trigger the coverage of Regulation B for purposes of prohibiting acts that could discriminate, particularly prescreening or discouragement.

Timing: The application begins the countdown for decision-making in two ways. First, the lender must proceed with "reasonable diligence" to obtain a completed application. Second, once the application is completed, the creditor must make a decision and notify the applicant within 30 days.

Regulation C
An Application is an oral or written request for a home purchase or home-improvement loan if the property is identified. It must be made in accordance with your procedures for the type of credit requested.

What this affects: This definition exists to determine what loans and applications should be entered and reported on the LAR.Timing: All applications should be reported on the LAR.

RESPA
An Application is the submission of a borrower's financial information in anticipation of a credit decision for a federally related mortgage loan. It can be written or computer-generated. If there is no property identified, the application is for a pre-qualification and not (yet) subject to RESPA. It becomes an application when the subject property is identified. For purposes of chartered financial institutions, a federally related mortgage loan is a loan secured by residential real property.What this affects: This definition exists to determine coverage and to trigger the timing of early disclosures, including the Good Faith Estimate, Required Service Provider, and Transfer of Servicing notices.

Timing: When the institution receives an application (written financial information) the three-day period for sending the GFE and other early disclosures begins.

Regulation Z
Truth in Lending works from the term "Consumer," a cardholder or a natural person to whom consumer credit is offered or extended. It does not contain its own definition of application. For purposes of early disclosure, Regulation Z refers to receiving a "written application" which triggers the three-day requirement. The RESPA definition of application applies to this. Regulation Z also uses - but does not define - the term "application form."

What this affects: The definitions and coverage determine when disclosures - and what disclosures - must be given to consumers.

Timing: Most Truth in Lending rules are triggered by or measured from consummation, the point at which the consumer becomes legally obligated. For residential mortgage transactions subject to RESPA, receiving a "written application" triggers the three-day early disclosure requirement. [Note: special pre-consummation timing rules apply to Section 32 mortgages and reverse mortgages.] Disclosures for Adjustable Rate Mortgages and Home Equity Lines of Credit must be provided with the application form.

Regulation AA
This regulation has Consumers, not applicants. A Consumer is a natural person who seeks or acquires goods, services, or money for personal, family or household use other than the purchase of real property.

A Cosigner is a person whose signature is requested as a condition to granting credit to a consumer or as a condition for forbearance on collection of a consumer's obligation that is in default.

What this affects: This arises only when the loan is to a consumer and a co-signer will be on the loan. This triggers the co-signer notice.

Timing: Determine whether there is a co-signer before closing.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 12, 10/01