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#1583016 - 07/26/11 03:26 PM Co-applicant denial reasons using new AAN
bluearrow Offline
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I am hoping someone can help clarify whether it is any type of violation to give the applicant and co-applicant the same denial reasons on the new AAN. The Feds final rules make it pretty clear that scores (and related key factors) need to be unique to each applicant so no issue there.
The third paragraph in the Final Rules under "Co-applicant" section vaguely indicates the applicant will figure out on his own whether it was related to them.
We have enough of a volume that we try to automate as much as possible,so in the past, we gave all co-applicants a notice that included the ECOA and FCRA sections without denial reasons.
Now, we will be sending model notice C-1 to each applicant with denial reasons.
Any conflict with sending same reasons to both?
thanks!!

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#1583033 - 07/26/11 03:26 PM Re: Co-applicant denial reasons using new AAN bluearrow
rlcarey Online
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Any conflict with sending same reasons to both?

No, the ECOA indicates that you have to give the reasons that the loan was denied, there is no requirement that you segregate reasons between co-applicants.
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#1583345 - 07/26/11 08:07 PM Re: Co-applicant denial reasons using new AAN rlcarey
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Thank you Randy! I read one of your responses on a different thread referring to a 2003 joint rule that said the applicants privacy went out the window on this subject but the thread was jumping around a bit.

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#1583916 - 07/27/11 06:27 PM Re: Co-applicant denial reasons using new AAN bluearrow
sammylou Offline
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Joe and Kim apply for a loan. Joe's credit score is horrible but Kim's is fine. Denial reason will be the judgments, collections, etc.... The AAN will list the judgments, etc... as the denial reason. Joe clearly also has to get the credit score disclosure. Does Kim receive the credit score disclosure about her credit score since hers wasn't the problem?
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#1583941 - 07/27/11 06:41 PM Re: Co-applicant denial reasons using new AAN sammylou
raitchjay Offline
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IMO, no. Her score was not a factor in the denial and the rule says to give the disclosure if the credit score was a "factor" in the denial.
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#1583955 - 07/27/11 06:56 PM Re: Co-applicant denial reasons using new AAN raitchjay
sammylou Offline
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That's what I was thinking, but wasn't sure. This is going to be messy!
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#1584251 - 07/27/11 10:01 PM Re: Co-applicant denial reasons using new AAN sammylou
EmilyAnn Offline
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I've been reading through all of the threads on the new credit score disclosure requirements in AANs, the new Reg B final rule, and the FCRA. It's clear that if a consumer report wasn't used in any way in taking adverse action, the FCRA portion of the combined ECOA/FCRA AAN should not be completed. However, there seems to be some very gray areas when it comes to the FCRA section of the AAN when a consumer report was used, but it did not belong to a specific applicant, in the case of co-applicants. As noted in the response above, many are of the opinion that if an applicant's own credit score (and I would assume consumer report) were not used in the adverse action, then the applicant would not get the FCRA portion of the AAN, including the credit score disclosure. I think that could be an entirely correct answer, but I am not sure.

Going back to section 615(a) of FCRA: "If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall..." My concern is with how this section is worded. It refers only to "a consumer report" - not specifically to a given individual's consumer report. Of course there are no regulations implementing this portion of the FCRA to make this more clear, and I am not aware of any official commentary that says that the information used to take adverse action has to be specifically from that consumer's consumer report. In addition, the new credit score disclosure requirement from 615(a)(2)(A) says to provide to the consumer written or electronic disclosure "of a numerical credit score as defined in section 609(f)(2)(A) used by such person in taking any adverse action based in whole or in part on any information in a consumer report." Although it is clear that this section is referring to the specific numerical credit score used by a person to take adverse action, it still contains the unclear reference to the adverse action being based in whole or in part on any information in "a consumer report."

I'm not an expert in FCRA or ECOA and I am not aware of any commentary or analysis that deals with this particular issue. I don't know that there even is any gray where I am reading gray, so I'm open to anyone that will direct me to a source that can make it black and white for me. However, as I take a step back and try to assess the big picture impact on our bank, here is where I am landing:

Joe and Kim apply for a loan. Joe's credit score is horrible but Kim's is fine. Denial reasons in the ECOA section of the AAN for both applicants will be the judgments, collections, etc. Joe will get the FCRA portion of the combined ECOA/FCRA notice, which will include the credit score disclosure with his own credit score. Kim will also get the FCRA portion of the combined ECOA/FCRA notice and credit score disclosure with her own credit score. Even though Kim's credit is fine, she will get the FCRA notice because the adverse action was taken based in whole or in part on any information contained in a consumer report - in this case, Joe's consumer report.

The FRB's preamble to the new Reg B final rule may also further support this position. In the section on co-applicants, it says "several commenters recommended adding language to the model forms to indicate that for co-applicants, the adverse action decision may be based on either or both of the applicants’ credit information. The Board believes that providing this additional language on the model forms would complicate the disclosures without providing a substantial benefit to consumers. An applicant with strong credit who receives an adverse action notice will likely understand that the adverse action decision was based on the co-applicant’s credit information or will contact the creditor to inquire." Had they been specific here about referring to the ECOA or FCRA section of the AAN, or both, we would have had a clear answer on this issue. In any case, I'm willing to interpret it as applying to both sections of the AAN.

Further, if an examiner has an issue with our bank applying it to both sections of the AAN, going forward I believe they would allow us to make the procedural change and not provide the FCRA portion of the AAN to "Kim" (overdisclosure in this case may be a problem with the CRAs having to provide free consumer reports, but as the Fed has indicated, the consumer is likely to understand the AAN resulted from the co-applicant's credit history). However, if we do it the other way around and an examiner has a problem, we'll be changing procedures to make sure we provide the FCRA notice going forward to Kim as well, and we may be required to go back and redisclose AANs to all of our previous "Kims" (since we would have been underdisclosing to the consumer). I suppose that's why I'm ultimately landing where I am on this issue.

Gurus/compliance experts, please correct me if my line of thinking is seriously flawed.

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#1584344 - 07/28/11 01:21 PM Re: Co-applicant denial reasons using new AAN EmilyAnn
sammylou Offline
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I see what you're saying and agree that "a" could go the other way and mean they should both get the FCRA part of the notice. On the other hand, this is so darn ridiculous it's maddening!! I guess we all just have to pick a position and go with it until they tell us something more definitively. It's not like we're not trying . . .
Last edited by sammylou; 07/28/11 01:22 PM.
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#1584442 - 07/28/11 02:51 PM Re: Co-applicant denial reasons using new AAN sammylou
raitchjay Offline
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I'm hanging my hat on this language: "A creditor that obtains a credit score and takes adverse action is required to disclose THAT score, unless the credit score played no role in the adverse action determination." (emphasis mine)

"An applicant with strong credit who receives an adverse action notice will likely understand that the adverse action decision was based on the co-applicant’s credit information or will contact the creditor to inquire." In this scenario, i believe they are referring to the fact that your applicant with a good credit score will be receiving an AAN with credit-related reasons checked on the notice (the bad score applicant's reasons); not that the good score applicant will be receiving their score with the box checked indicating THEIR score was used in making the denial.
Last edited by raitchjay; 07/28/11 02:55 PM.
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#1584582 - 07/28/11 04:28 PM Re: Co-applicant denial reasons using new AAN sammylou
EmilyAnn Offline
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I agree with you sammylou - this is maddening and ridiculous. We'll set our positions as best we can until we know better.

And raitchjay - thank you for weighing in. Your position makes sense, and really I could go either way - I just wish we had something more definitive to work from.
Last edited by EmilyAnn; 07/28/11 04:34 PM.
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#1585072 - 07/29/11 01:48 PM Re: Co-applicant denial reasons using new AAN EmilyAnn
bluearrow Offline
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EmilyAnn, that was exactly my train of thought and you wrote it much better than I could so a big thank you! I kept honing in on that last paragraph of the co-app section of Fed's final rules. Our data system has very little flexibility so giving each client similar notices (different scores/factors) is our best option to get in compliance. I just wish we had more time to implement this. It has been frustrating.

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#1585077 - 07/29/11 01:59 PM Re: Co-applicant denial reasons using new AAN bluearrow
Dan Persfull Online
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Look at the definition of consumer in 603. A consumer is defined as an individual.

If you did not deny me based on my consumer (individual) report then I am not entitled to the FCRA AAN. I have no right to request another consumer's (individual's) report used in the adverse action.

The statement of specific reasons required in the ECOA is where you tell me my credit request is being denied due to the co-applicant's delinquent credit history.

The FCRA AAN is only provided to the consumer (individual) whose consumer (individual) report was used in the adverse action.

Nothing in 615(a) contradicts that IMO.
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#1585250 - 07/29/11 04:20 PM Re: Co-applicant denial reasons using new AAN Dan Persfull
EmilyAnn Offline
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Thank you Dan. I've read a lot of your posts on AANs and other issues and appreciate how you can narrow in on an issue and provide clarity. Your comments make sense and I wish you were writing official commentary so we could all be done with the questions.

Absent official commentary, I could still go either way. 615(a) says "if any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report..."

I could read this as "if the bank takes adverse action with respect to any individual that is based in whole or in part on any information contained in an individual consumer report" and still provide the FCRA AAN to both co-applicants, because the action taken against any individual was based on an individual's consumer report, not necessarily that individual's consumer report. The credit score disclosure would still only include that individual's credit score, and no one else's, as the Board has stated that they "do not believe...that Congress intended for an individual to receive another individual’s credit score."

Also, as you've pointed out, I agree that an invididual has no right to request another consumer's (individual's) report used in the adverse action. The FCRA AAN gives each individual the right to request their own credit report.

I keep landing on this side of the issue because of the potential for underdisclosure vs. overdisclosure. If I read it one way and do not provide the FCRA AAN, I have underdisclosed and potentially "harmed" the consumer. I'll need to get examiners to agree with me that not providing the FCRA AAN was appropriate (which they may). On the other hand, if I do provide the FCRA AAN, I have perhaps overdisclosed and given someone the right to request a free copy of their consumer report, which the CRAs would not like. However, the CRAs are not examining my bank. If the examiners disagree with us providing the FCRA AAN, we'll stop, and no one has been harmed in the process. The consumer perhaps got more information than they needed, but they were certainly not harmed by it.

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