Are we required to accept an application for a product we don't offer? Can we just tell the customer we don't offer it or are required to let them apply and send them an AAN stating we don't offer the product. Ex. Our debt consolidation loans are only offered for a maximum term of 24 months and our branches have been accepting applications for 36 month terms. Can we just train the branches to tell them that we don't offer the terms they're requesting or do we have to officially accept and then AAN them. Tx.

You offer the product applied for, you just do not offer the terms applied for, therefore an AAN would be required. Look to the OSI for 202.2(c)(2)(v)(1).

Don't confuse terms of a loan with a product:

Paragraph 2(c)(2)(v)
1. Terms of credit versus type of credit offered. When an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of downpayment), a denial of the application for that reason is adverse action (unless the creditor makes a counteroffer that is accepted by the applicant) and the applicant is entitled to notification under § 202.9.

So, if a loan officer contacts the customer and says we don't make such a loan at 98% LTV, we could only go to 90% LTV, which would be "$X" amount based on your application information of the value of the property, would this be a counter offer?

Yes.

We're having this discussion and some are indicating that we would have to accept an application so that it would not look like we are discouraging anyone from applying. But if we really don't offer the product (such as a loan to buy a helicopter), can't we inform the customer we don't offer helicopter loans and not accept an application?

Either way, it would not be adverse action, so there are no retention requirements.