There has been some discussion with a few of our Commercial Lenders recently regarding Reg B and how it affects commercial loans. We’re wondering how other banks are handling the Notice of Incomplete process in order to stay compliant with Reg B while processing commercial loan applications. We have a couple of questions.

1.How are other banks providing an NOI – by letter or verbally?
2.If the NOI is given verbally, how is it being documented?

Any notice given verbally needs a memo in the file or notation in the online relationship management system/origination system.

Kathleen,

May I add on to this, because some commercial deals [i.e. energy loan] may take 6-12 months to get everything needed to finalize the approval. Can the lenders make periodic comments to the file regarding the outstanding items [new or old] rather than sending a written NOI and still stay compliant?

Yes, those files should be well documented so that anyone looking back through it knows what was taking place. It is not unusual for complex commercial deals to take a long time. Memos showing that the customer has been kept informed (and is keeping the bank informed) go a long way to documenting the transaction. Usually the delay is for items out of the customer's and bank's control...and that is okay.

That's what I thought--just wanted to confirm I wasn't being a crazy compliance person.

It has always been my understanding that the NOI must be delivered within 30 days of receiving an incomplete application; be in writing; include a list of the items needed; provide a date by which the information must be received; and a statement that no further consideration will be given to the application if the information is not received.

Where does it state in the regulation that the NOI required in 30 days can be delivered verbally? I know we can notify a commercial loan applicant with revenues greater than $1M that the application has been declined; however, I don't think this is true for the NOI.

The regulation and commentary just say that notice to business customers can be given orally or in writing (with the slight variations for businesses with revenue of $1 million or less. Now, for a list of documentation needed, I would expect to see that in writing simply for the practical reason that the bank wants to be on record as to what it requested and to have something to check against as materials are received. The bank should document all communication for legal reasons in the event problems and disagreements arise further down the road. An undocumented file is dangerous.

Ongoing updates are not required to be in writing, but again, communication with the customer needs to be documented to protect the bank and for practical reasons some of that will be in writing, perhaps verifying a verbal conversation.