I was reading the following Q&A this evening and would appreciate someone clarifying the sentence that says:

"If the bank does tell a customer they are not interested, that of course can trigger a denied application."

Does this sentence mean if the Bank isn't interested and does not prepare a term sheet at all, or does it mean after the customer signs the term sheet? If during a general discussion as described below, the loan officer expresses the bank would not be interested, does the bank have to complete an AAN? Thanks for your help.

Here is the Q&A:

“Term Sheet for Commercial Considered Loan App? 09-12-12


Question: When a Commercial Department is presented with an opportunity to provide a term sheet for a commercial loan - prior to receiving a loan application - is this request to be considered a loan application? Does HMDA reportable issue apply if the bank never received a loan application and there is no loan decision?


Answer: Commercial lending areas must determine what is an application for their particular process. A term sheet is generally when a customer is shopping, comparing fees, etc. No true analysis is done, merely general discussions of how a deal could be structured, what costs would be involved. Once the customer selects the bank with whom they will proceed, the term sheet is signed and a fee is generally paid. At that time, financial statement analysis begins and the bank considers it an application for Regulation B and HMDA purposes. The bank will give the customer a list of information needed for a complete application. If the customer presents that at one time (which does sometimes happen with commercial deals) it will be a completed application at that point.

If the bank does tell a customer they are not interested, that of course can trigger a denied application.

It is very important for the bank to specifically spell out what is an application in these situations for Reg B and HMDA purposes. If no actual application was received and no decision made, there is nothing to report.

Process is the key.”

Any time a bank says "we won't do that", " not interested", etc. rather than encouraging the potential applicant to apply, the inquiry or application becomes a denied application.. This triggers adverse action rules under Reg B regardless of whether or not a term sheet has been issued.

The commentary to Reg B addresses inquiries in the definition of application:


3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under §1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks. (See comment 9–5 for further discussion of prequalification requests; see comment 2(f)–5 for a discussion of preapproval requests.)

Hi Kathleen,
I'm in process of learning loan compliance and sincerely appreciate the feedback.

Best of luck. We are all here to help each other.