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#1580898 - 07/21/11 02:29 PM Credit Score on "Statement of Credit Denial"
bugleboy Offline
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The new "Statement of Credit Denial, Termination, or Change" replaces the former Reg B "Notice of Action Taken" for loan denials. Our bank does not risk price loans and a credit score is not used to determine credit terms. The question is this: are we now required to disclose the credit score (even though it is not used) on the "Statement of Denial, Termination, or Change" to be compliant with Dodd-Frank? There is information in several news articles that says "lenders (are) to provide consumers with a free credit score whenever they reject an application for a loan"
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#1580996 - 07/21/11 03:42 PM Re: Credit Score on "Statement of Credit Denial" bugleboy
AFaquir Offline
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Bugle,

two seperate issues going on here at once. Reg V which is the risk based pricing notice, and Reg B which is the denial notice you use.

My bank does not do risk based pricing either... in that case we do not have to provide them with a risk based pricing notice and a credit score showing them that that while they were approved, they got a higher rate because their credit score was X based on deliqunicies, charge offs etc...

The alternate issue is that the notice of action taken, aka adverse Action Notice, has been amended to include this same information for the times when you don't make a loan in whole or in part based on the credit score. In fact there are new model forms available which have space for this information.

So, that being said to answer your question. Even though you do not use risk based pricing. If you check credit and deny the loan in whole or in part based on the information contained on the credit report, you have to disclose the score used for the denial and as many as 4/5 reasons supporting the denial... which is in ADDITION to the standard Reg B rasons you denied the loan... so DTI and LTV and everything else you underwrite for still also needs to be disclosed... PLUS the low credit score.

Hope that helps. The ABA has an analysis of the changes which are concise and make this whole thing easy to understand.

Cheers!
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#1581234 - 07/21/11 06:33 PM Re: Credit Score on "Statement of Credit Denial" AFaquir
ahanna Offline
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Originally Posted By: AFaquir
Bugle,

Even though you do not use risk based pricing. If you check credit and deny the loan in whole or in part based on the information contained on the credit report, you have to disclose the score used for the denial and as many as 4/5 reasons supporting the denial...


I disagree. The revisions to Reg B only require you to include the credit score and related factors on the AAN if you obtain use the scorein your decision (unlike the RBP rules which only require your to use the report). However, if you are not risk-based pricing your loans, as stated in your original post, then why pull a score at all? If all approved applicants are offered the same credit terms you are exempt from the RBP and exception notice rules, so why obtain the score?

My opinion- if you are pulling a score you will have a rough time defending your position that you are not "using" the score since the new definition in the final rule for "using" a score is pretty broad.

Aside from the disparities in the regulations, we use Arta for denials and their new form (which it sounds like you are using as well)does not allow you to disclose that you used a credit report but not a score; if you check the box for one it automatically checks the boxes for both. Hopefully that is something they will correct with an update.
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#1581642 - 07/22/11 02:20 PM Re: Credit Score on "Statement of Credit Denial" AFaquir
Polo Offline
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AFaquir
You posted: The ABA has an analysis of the changes which are concise and make this whole thing easy to understand.

What is the name of the analysis?
There are tons of articles and data on DFA and I am looking for something that would break it down it an easily understandable format.
Thank you

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#1581729 - 07/22/11 03:35 PM Re: Credit Score on "Statement of Credit Denial" Polo
Island Dreaming Offline
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Not AFaquir here but the ABA analysis is titled: ABA Staff Analysis: Final Rule on Credit Score Notices July 2011.
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#1581808 - 07/22/11 04:14 PM Re: Credit Score on "Statement of Credit Denial" Island Dreaming
zitch70 Offline
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Our bank is not a member of ABA, How would I get a copy of the Staff Analysis?

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#1581809 - 07/22/11 04:16 PM Re: Credit Score on "Statement of Credit Denial" zitch70
zitch70 Offline
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Let me ask one question, Is this effective on decisions made July 21st or after on credit applications?

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#1582010 - 07/22/11 06:34 PM Re: Credit Score on "Statement of Credit Denial" zitch70
Ishmael Offline
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Yes, if a credit score is used in making the decision. The term "used" is very broadly defined. Also be mindful that credit scores are potentially used in contexts beyond just credit decisions.

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#1584124 - 07/27/11 08:42 PM Re: Credit Score on "Statement of Credit Denial" Ishmael
Princess Romeo Offline

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You know - unless you are using an automated or semi-automated system that actually USES the credit score as a parameter in loan decisioning or pricing, why bother to get the silly thing?

I don't understand the fascination that a commercial lender has in stating on a credit approval memo that the borrower has a FICO of 760. Wouldn't the fact that the borrower has successfully conducted his business for 15 years, has a DCR of .95 to 1 and has no derogatory trade lines be sufficient? The slight shadings of difference between a FICO of, say, 760 vs. 740 could be as simple as someone who is using 15% of her credit card line rather than 35%.

Frankly I think most credit scores are mathematical sausage.
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#1584271 - 07/27/11 10:16 PM Re: Credit Score on "Statement of Credit Denial" Princess Romeo
Princess of Power Offline
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Princess Romeo ~ I am so totally with you. We have turned the score OFF as it truly is not used at our FI for the decision or pricing so we decided we did not need the headache or confusion it could cause.

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#1584372 - 07/28/11 01:36 PM Re: Credit Score on "Statement of Credit Denial" Princess of Power
Cornfed Turtle Offline
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OK...I thought I had this down until I saw our notices in print. We've added the credit score disclosure onto our AANs, but we are also including the exception notice and Notice to Home Loan Applicant in the mailing.

I've grabbed more coffee and my Federal Register. Do we really need to give them this many pieces of paper with a score on it or have we missed something?

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#1584398 - 07/28/11 02:10 PM Re: Credit Score on "Statement of Credit Denial" Cornfed Turtle
Ted Dreyer Offline
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Cornfed turtle: If you give the H-3 exception notice, that already includes the NTHLA and the NTHLA is not needed.

If you give an AAN before you give the H-3 exception notice then you do not need any RBP notice BUT remember that you would then need a NTHLA because you are no longer giving the H-3.

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#1584402 - 07/28/11 02:09 PM Re: Credit Score on "Statement of Credit Denial" Ted Dreyer
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Very clear....thanks Ted. We can tuck the old NTHLA in the AAN and call it good.

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#1584870 - 07/28/11 08:27 PM Re: Credit Score on "Statement of Credit Denial" Cornfed Turtle
ahanna Offline
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Princess Romeo - I agree with you, but that logic will only apply to banks who do not use credit reports to set the terms of their loans. If you offer ONE rate for every approved applicant for any particular product, I agree the score is more trouble than it's worth. However, if you charge less credit-worthy applicants higher rates based on info in a credit report, you must now obtain the score if you wish to utilize the exception notice from the RBP rules.

Maybe my bank is in the minority by still pricing loans based on credit history though...
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#1585535 - 07/29/11 09:11 PM Re: Credit Score on "Statement of Credit Denial" ahanna
Princess Romeo Offline

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There are a number of banks that mainly do commercial loans with an occasional consumer loan that don't do risk based pricing for consumer loans. For them, getting the credit score has been kind of a security blanket "crutch" to show that the borrower is credit worthy, (or not in which case the credit approval would discuss the mitigating factors), but in the end, the score isn't telling them anything that they couldn't glean from the credit report.

If you are going to do Risk Based Pricing, then you are better off getting the score or you risk opening yourself up the possibility of disparate treatment. Most places that do any kind of volume of consumer loans will have to face the fact that their AAN's are now two pages or now closely resembles the 3 foot long purchase contract from an auto dealer.
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