The examiners picked up an adverse action file where we originally completed an adverse action form with a counteroffer to secure it with a vehicle. The file indicates the borrower expressly accepted, but then the borrower never brought in the title. My question is should we have done a second adverse action form? Examiners think we should have and I'm having difficulty coming up with a valid argument.

OK - Let's look at this step by step.

1. Customer applied for an unsecured loan.

2. Bank denied the application providing the customer a proper adverse action notice citing the reasons for denial and also provided a counter-offer of making a secured loan which the customer did not accept.

3. What additional adverse action was taken that would trigger another notice?

The examiners are barking up the wrong tree if your original adverse action notice complies with Regulation B. If it was just a counter-offer and not a combined adverse action notice/counter-offer, then an adverse action notice would be required to be delivered within 90 days if the counter-offer is not accepted.

I agree. Assuming you gave an official counteroffer notice, the customer verbally accepted but never followed through. No further notice is required.

They are not buying that. This is their argument.

Once the borrower expressly accepted it then the original adverse action with the counter is not valid because the reason has changed. The reason we ultimately were unable to do the deal was because they didn't bring in the title.

Reg B commentary indicates "Counteroffer combined with adverse action notice. A creditor that gives the applicant a combined counteroffer and adverse action notice that complies with § 202.9(a)(2) need not send a second adverse action notice if the applicant does not accept the counteroffer."

It sounds like because they accepted (even though they didn't follow through) then we would have to do a second adverse action.

Does anyone disagree with this, if so, I need some support.

I don't see what you could argue other than that by not bringing in the title they did not ultimately accept the offer! They indicated they would but did not.

Yes, that was my thought as well, but I think it's futile since the loan report indicates they expressly accepted.

Dave

The loan report should also state that they never brought in the title, and therefore did not follow through. Does it show that?

If you can't win the argument you would have to issue an adverse action notice for the initial reasons you would not do the loan unsecured.

I'm with Kathleen. The borrower may have said they accepted but their further action demonstrated that they in fact did not accept the counter offer. It’s not uncommon to see borrowers tell an LO over the phone yes, just to get off the phone then think about it and decide no, they don’t want to accept the counter offer. I would ask the examiner what the additional document would have provided the customer. The borrower already knows that without the additional collateral that their loan is denied. They didn’t provide the additional collateral, they know they are denied.

Are these Fed examiners or some sort of internal auditors???

These guys a full of exactly you-know-what. Accepted a counter-offer means they took the loan. It does not mean that they verbally communicated anything to the bank. No loan - no acceptance - no further action regardless.

Look at it another way. If this was a new loan application, the loan was approved if the borrower brought in the title to closing. They didn't show up and bring in the title, so the loan was approved and not accepted.

Whoever this is needs to go back to Regulation B 101 school.

They were FDIC examiners. I finally gave up on it and they cited us for not completing an adverse action, even though we initially did one with a counter.

I have never had these issues with our FDIC examiners (Chicago Region). Would you mind sharing what Region you are in? There's been a couple of interpretations coming out of other regions lately that when I contacted my EIC she basically said ... WHAAAAAT???

I have one question, did you give them a firm offer of credit or did you merely tell them you would reconsider the request if they provided collateral?

As I've tried to convey in the past simply telling them you will reconsider if they do this or that is not a counteroffer.

If they re-activated the application offering collateral and they failed to provide the required information you would have an incomplete application and would IMO have to act on the incomplete application. Based on this theory then your examiners may not be too far off base with their citation.

Another probability is if they did offer the collateral and you approved the re-activated request based on the collateral and they never followed through with the title then you have an approved not accepted and under Reg B you have no notification requirements if the borrower does not follow through on the approval.

That was my question...did this turn into an incomplete application by default?

Wait tho...it's not technically an incomplete 'application'...a closing condition wasn't met. Therefore, my mind is going back to 'approved (with conditions) - not accepted.

Dan,

We countered on an adverse action form with a lower loan amount and a collateral requirement. The borrower indicated in the file that they would do it, but they never followed through and delivered the collateral documentation, so the loan died. We did not do a second adverse action and the examiners were indicating that we should have because the reasons changed.

If the applicant did not consummate the loan under the terms of the counteroffer then they did not accept the counteroffer, they may have implied they would but if they take the loan then they did not. If you sent them a combined AAN and counteroffer you do not owe them any additional notification.

Agree with Dan. "Expressly Accept" may be misleading - it does not mean a note from the customer in file indicating they expressly accept the changes.
It means the loan closed and was funded.