We are looking at only accepting applications with credit scores of 700 or greater in our indirect lending department.

I have read through parts of the FRCA, but am confused about the conditions for sending the AAN's. If a credit report was pulled and the score was <700, are we obligated to send the AAN?

Remember that the AAN is two-fold (for now). Both ECOA and FCRA. Under ECOA, adverse action is explained in the commentary as "If the applicant applied in accordance with the creditor's procedures, a refusal to refinance or extend the term of a business or other loan is adverse action." If you take "adverse action" on the application, you are required to send the notice under Regulation B, section 202.9. If the adverse action is based on information contained in a report obtained from a third party credit reporting agency (credit report/score), then the additional notice language under FCRA is required.

Thanks

Also, does not meet minimum credit score requirements is not a sufficient reason to put on the ECOA AAN. You must give them the reasons their score did not meet the minimum.

Also, as Randy will most likely point out if he sees this. Can you document that the 700 score is empirically derived based on your portfolio's analysis. IOWs, how did you arrive at the 700 magic number?

Dan,

Thanks for the additional input: you brought up the essence of our problem.

1) If we do our research and decide 700 is the magic number (which i doubt we can do), then
2) We will be able to deny any applicant that is below 700.

However, as you stated, "does not meet minimum credit score requirements" is not a valid reason for ECOA AAN. But since that is exactly why we are denying them, then I don't see how it would be lawful to make our decisions based solely on a credit score. Do you agree?

Unless you are using empirically arrived credit scoring system I would agree you cannot deny based on score alone.

If you can show your losses are greater with your customers with scores below 700 you can deny based on the score but since you are not using a empirically derived credit score program you have to give the reasons the score fell below your minimum. Such as past delinquent credit, too many credit cards, etc.

Okay, I'm a little bit confused.

So you are saying that we could choose a cut-off score without empirical data testing, but if we do so we have to send AAN's with the specific reasons for denial listed.

Or

If we do our research and show our losses are greater for customers below a certain credit score using an empirical analysis, then we still have to send an AAN, but we only list the factors used in the credit scoring system.

Either way we still send an AAN, correct?

...

Nevermind I found my answer in Reg B appendix I, thank you for your responses everyone.

Either way is AA therefore you have to provide an AAN.

Credit scoring systems are discussed in 202.9 and its Commentary.

Using the "FICO" score as a cut off is not the same as using a credit scoring system.