If we are denying an applicant due to "Excessive Credit Obligations" would it require the FCRA disclosure on the Adverse Action? This reason is used when their debt-to-income ratio is too high so its really not about "bad" credit.

From where did you get the "obligations" to make this determination? If in whole or in part from the credit report, then the FCRA disclosure is required.

Personally, I don't like the term "Excessive Credit Obligations" as that is too subjective in my mind. Who is to say what is excessive and what is not. I prefer to stick with the model terminology found in the models to Regulation B, such as "Income insufficient for amount of credit requested" or "Excessive obligations in relation to income".

We are actually using "Insufficient income for amount of credit requested" also. I think we should just take off the "Excessive Credit Obligations" as a reason. So if we use "Excessive obligations in relation to income" as a reason do you think we would have to use the FCRA disclosure?

If you used the credit obligation listed on the credit report in whole or in part or to verify information on the application to calculate your DTI - Yes.

From a David Dickinson post: "If you pull a credit report but do not use it to deny the applicant, do NOT report the use of the credit report as you didn't use it adversely against the applicant. Bonnie said "While the report itself may not have derogatory information, if the DEBTS reported affect the debt-to-income ratio, then the FCRA notice is still triggered." This is NOT true if the borrower reported all of these debts on their application. If the credit report only verifies what the applicant already stated, I did not use the credit report against them." (emphasis mine)

Here's the link to the post: http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=19422

It's from 2002, but I am pretty sure I've heard David Dickinson talk about this since then and reiterate this same position.

I guess this is one area in which David and I might disagree, although David may have changed his mind in the last ten years also.

From the 2011 interpretations:

No requirement that information in consumer report be derogatory. A user of a consumer report that takes adverse action wholly or partly because of information contained in a consumer report must provide the required notice to the consumer, even if the information is not derogatory.

Denial based partly on a consumer report. The user of a consumer report must provide an adverse action notice even if the adverse action is based only partly on a consumer report.

So you're saying that if you compare the information on the application and there is a credit they didn't list, you would add it to the DTI ratio and the disclosure would be required, but if they all matched up then you didn't use the report and no notice would be required. I find the argument that you didn't use the report in the first second case to be a little weak.

Randy, I agree - the 2011 interpretations make that issue pretty clear. It didn't click that those interpretations should override what I had previously stuck in my brain from the 2002 post. Thank you for providing the update.

I thought I had heard David Dickinson talk or write about this more recently, but I certainly do not intend to speak for him or where he stands on the issue now.

Edited my previous response to second case instead of first to avoid confusing the point I was trying to make

As Randy pointed out, the 2011 FCRA interpretations have changed my stance on this.

Not that this is your question, but it's correlated. My opinion is:
"Excessive Credit Obligations" = my obligations are too high already - before taking on this new debt.

"Insufficient income for amount of credit requested" = my income won't support this debt.

For instance, I could be debt free and ask for $1,000,000. I don't have excessive obligations, but my income is not sufficient for the new loan requested.

On the other hand, if my debt to income ratio is already at 80%, I have excessive credit obligations.

Hope this helps.

David - thank you for clarifying where you stand on this now.

Below is an email I sent our loan officers and their processors to help them determine which category to use.


Which income category to choose as a denial reason on the Statement of Credit Denial, Termination or Change form can be a bit confusing.

Please keep the following as a future reference to help you make the correct choice.

Income insufficient for the amount of credit requested.

This option is used when the amount of credit being requested causes the applicant's debt to income ratio to exceed our allowable ratio.

Excessive obligations in relation to income.

This option is used when the applicant's current debt to income ratio exceeds our allowable ratio without consideration of the new loan request.

Here's a "trick" to help you choose the correct option when using our consumer underwriting form.

Under the Debt Ratio section of the Consumer Loan Underwriting Worksheet: (Which is the worksheet you should be using for all consumer loan requests.)

If the Present Debt Ratio exceeds our allowable ratio then you will use Excessive obligations in relation to income as the denial reason.

If the Proposed Debt Ratio exceeds our allowable ratio then you will use Income insufficient for the amount of credit requested as the denial reason.

Is this following found in the regulation or official guidance?

"Excessive Credit Obligations" = my obligations are too high already - before taking on this new debt.

"Insufficient income for amount of credit requested" = my income won't support this debt.

I think it is just a matter of common sense.

Can someone please let me know if it's possible to have both a 615(a) and 615(b) FCRA disclosure on an AAN? Or should only one be used at any point in time. Thanks.

Is it possible. Sure, if you received information from both a credit reporting agency and some other third party.

Thanks for your reply!

Dan, your response really brought some clarity to a situation I am undergoing. Our underwriters make decisions based on the ratios on the 1008/transmittal summary, the top and bottom ratios. Our review staff is independently calculating a DTI to verify whether or not the obligations were excessive or insufficient income. Wouldn't there be a way for us to use the top and bottom ratios instead? I'm concerned that since different staff are using different figures it creates room for a gap.

We only use a 1008 for loans to be sold to Freddie or the FHLB. For these loans we use the "Total Obligations/Income" ratio.

I would be reluctant to use the "Primary Housing Expense/Income" ratio because it only includes the applicant's housing expenses and not their other debt.