Obviously, if a customer applies for a specific loan amount or credit line amount, and we refuse to grant that much, we would be required to deny or counteroffer the request. If the customer did not accept our counteroffer, we would need to send a written adverse action. What I'm wondering is, under the definition of "application" in 202.2(f) which provides that the application must be made "in accordance wtih procedures used by a creditor for the type of credit requested," does this give us the flexibility to prevent an applicant from requesting a specific credit limit amount in connection with a credit card application?

In other words, if we could prohibit an applicant from requesting a specific credit line amount, we could avoid counteroffer situations for dollar amount. We would simply underwrite the application and determine what dollar amount they qualify for, and approve for that amount. If they didn't qualify for any amount, of course, the request would be denied.

Second part of the question is this: Assuming the above proposal is acceptable, would it be okay to advise the applicant that, if they are approved for a credit card upon application, the account will be automatically opened for them. If they are unhappy with the credit limit and don't want the account, they would need to close the account because it would have been automatically opened for the approved credit limit immediately upon approval. I'm not terribly comfortable with this, but thinking maybe it could be okay if disclosed properly with the application.

I am not sure how a regulator might consider what you are describing, however, I would not recommend it. I would not want to be accused of dictating how much credit an applicant can ask for. In fact, an applicant can ask for whatever they want. The lender's responsibility is to respond to the request in an fair manner.

I agree with Kevin you don't have a right to prevent me from applying for a $25,000 credit card limit.

If you can only approve me for $10,000 then you send me a card with a $10,000 limit. If I accept (activate) it then I accepted your counter offer and you don't need to do anything further.

If I call you once I receive the card and ask why I only got a $10,000 limit then you can explain the reasons to me. If I decide to keep the card then again I accepted the counteroffer and you need do nothing further. If I say hey if I can't have my $25,000 then I don't want anything and I'll destroy the card then I did not accept your counteroffer and you send me the AAN with the reason you didn't approve my $25,000 request.

We have a Sole Proprietor credit card customer with an already high credit limit. He is requesting an increase on his limit, but the FI is not comfortable increasing this customer's already high limit, what would the best reason be to decline the request? the customer's debit ratio would still be within underwriting standards with the increase and the FI has no written policy on caps. all other approval requirements are met,(credit score, job time, etc...).

what would the best reason be to decline the request

Based on the creditworthiness of the borrower that you present in your post, I have no idea.

Why are you uncomfortable increasing their limit? Is it net worth, seasonal business, etc. As I said based on the information you provided we can't give you a good reason, other than "Bank doesn't want to" and there is nothing saying you have to increase the limit if you don't want as long as your reason for not doing so is not based on a prohibited basis.

However, as you see it does present a problem with stating a reason on the AAN.

We are uncomfortable increasing the limit for the following reasons.
fairly new credit card customer with no other relationship with the FI.
short payment history with FI and
a conservative approach to unsecured lending.
unfortunately, those reasons do present a problem when completing an AAN

Do you have a policy for how long an account must be open before a credit limit increase request will be approved? If so,

"Credit account has not been established for a sufficient length of time."

that would be nice, but no, we do not.

You could still use the reason but you would be subject to criticism by your regulator since you have no policy addressing LOC increase requests.

thank you