Can we 'just' go ahead and cancel a loan application which is incomplete and send adverse action notice that we cancelled the loan application?

You have to deny it for an incomplete application or send the notice of incompleteness giving the information needed and the date by which it is needed.

If the loan request is subject to HMDA reporting you report it as a denial if you deny it for an incomplete application, or if you send the notice of incompleteness and they do not furnish the information you would report it as closed for incompleteness.

The notice of incompleteness is discussed in Reg. B 202.9.

It is a consumer loan and given the state of capital markets - there is a reluctance to fund applications - so, if the application is complete - we just want to deny period. So, do we have to send a notice of incompleteness as mandated in Reg B or can we just cancel the application and send denial adverse notice?

If you have a complete application then what is your rationale for sending the notice of incompleteness?

If you have a complete application then you either approve it or deny it. If you deny it then you have to give the specific reasons for denying it.

Dan is spot on. The question is confusing. At the heart of the matter, are you denying the application because it doesn't qualify in today's market, or because you don't have enough information to know if it does? It sounds like the former which requires an AAN.

Sorry. Understood I meant incomplete, incomplete as a reason to deny, as opposed, to sending a notice of incompleteness and offering them a chance to submit a complete application. Understand the rationale, we don't want to fund but can't say that directly.

How is the application incomplete? What information is missing that you need to make the credit decision?

Why don't you want to fund?

IMO you have made a decision not to fund the loan, therefore you have denied the application and you must send an AAN telling them why you don't want to fund the loan, and based on your comments it's not because you have an incomplete application.

The intent of the AAN is to tell them why they don't qualify. If it is correctable, or mis-information, they may then be able to qualify. So the root may be why don't you want to fund the loan, inadequate down payment, debt, lack of credit record, etc. The fact that you just don't want to won't be acceptable, nor is creating a reason. That will make your decisions inconsistent and add an appearance of potential discrimination if there is a patter or practice here.

The net, net, net is to define why they don't qualify.