Thread Options
#2012078 - 05/05/15 03:22 PM Denial Reason/Switch Product
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 226
I'm not quite sure where this fits. I think Fair Lending so here goes. I'm no compliance expert so I need some guidance.

We had a customer apply for a loan in the name of a business to refinance their farm and upgrade equipment. It turns out this property is not operated as a farm and the denial reason of "not a farm" was given and the lender referred it on to our mortgage department.

I don't think this is a fair reason to deny considering we do non-farm loans in our bank. However, I do see the lender's point of letting them know she cannot do anything for him as it needs passed on to another department.

Can we deny for this reason or at least reword to something like "credit not granted on terms requested" or can we simply refer this request to our mortgage department without denying it?

Is there anything in the regulation that would address something like this? Denial vs. referral?

Thank you, in advance, for your help.

Return to Top
Fair Lending
#2012367 - 05/06/15 03:00 PM Re: Denial Reason/Switch Product Kisha
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
People don't apply to departments. They apply to the bank. If the specific lender needs to forward this to a different department, they should do so. To do otherwise is horrible customer service (in my opinion) and doesn't meet regulatory requirements.

If the bank is willing to do this loan - even in a different department - why would you deny the request? If the bank can't do the loan (in any department), then state why specifically. "Credit not granted on terms requested" is not a specific reason. What terms can't be granted?

Simply forward the application to the mortgage department and let them evaluate it.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2012376 - 05/06/15 03:12 PM Re: Denial Reason/Switch Product Kisha
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,379
Florida
David, thanks - I've been staring at the post since noon yesterday, with exactly the same reaction, but could not figure how to put the reply in concise non-technical language. My thoughts exactly
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top
#2012693 - 05/07/15 01:57 PM Re: Denial Reason/Switch Product Kisha
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 226
Thank you for your responses. I was feeling the same way, but hesitant to make a firm decision that this is not a reason for denial.

I do have a follow-up question. Does it matter that the applicant filled out a commercial application? I got a response from another source that they agreed that simply referring it on to another department would be fine and no AAN would be needed if they used the proper application.

I just want to be sure, going forward, that I am not violating any rules concerning Adverse Action.

The following was also given to me as a reference:

Sec. 1002.2 says:

(c) Adverse action. (1) The term means:

(i) A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;

(ii) A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts; or

(iii) A refusal to increase the amount of credit available to an applicant who has made an application for an increase.

(2) The term does not include:

(i) A change in the terms of an account expressly agreed to by an applicant;

(ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;

(iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;

(iv) A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or

(v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.


Would I be looking to reference (2)(v) because we don't offer ag loans to non-working farms, but we do offer mortgage loans to accommodate the purpose the customer was stating? Therefore, further supporting that we should not issue an AAN.

Thanks again for the guidance.

Return to Top
#2012714 - 05/07/15 02:43 PM Re: Denial Reason/Switch Product Kisha
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,379
Florida
Kisha, "v" is a tough one. 2 examples - my take

If the bank does not offer credit cards, and someone applied for a credit card, "v" would be applicable.

If someone applied for a 40 year mortgage, and the bank only offered 15 and 20 year mortgages, then "v" would NOT be applicable, because the bank makes mortgage loans, just not the 40 year "term".

If the bank makes mortgages, then it could not use "v" because it makes those types of loans, just not having the terms, or type the customer wants.
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top
#2012722 - 05/07/15 03:04 PM Re: Denial Reason/Switch Product Kisha
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 226
Rocky P - I see what you're saying about this. Makes sense.

How about the proper application question? What are your thoughts on that? We don't use just one application. We have several depending on the product you want. Does this really make a difference in the referral to another department situation?

Return to Top
#2012826 - 05/07/15 06:23 PM Re: Denial Reason/Switch Product Kisha
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Quote:
Does it matter that the applicant filled out a commercial application?

No.
Quote:
I got a response from another source that they agreed that simply referring it on to another department would be fine and no AAN would be needed if they used the proper application.

Close, but not quite accurate.

There's never a regulatory requirement for an applicant to complete an application form. Reg B does require written applicants but 1) only for the purchase or refinance of principal dwellings, 2) even then it's a requirement on the lender, not the applicant and 3) no specific form is required:

Model application forms are provided in Appendix B to the regulation, although use of a printed form of any kind is not required. A creditor will satisfy the requirement by writing down the information that it normally considers in making a credit decision. The creditor may complete the application on behalf of an applicant and need not require the applicant to sign the application. [Commentary to ยง1002.4(c) #1]

The creditor (bank) has received a request for credit. You can't say it was given to the wrong department. As we discussed earlier, you need to route it to the right department for consideration.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2012827 - 05/07/15 06:26 PM Re: Denial Reason/Switch Product Kisha
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,379
Florida
An application (or type of application) is a bank thing, and not necessarily guided by federal regulations.

Some banks use similar applications for all credit requests, some have different applications - mortgage uses FNMA, consumer has a simple form, and commercial LO's use a stickie on the back of the golf score pad.

If a commercial LO came in with the golf score pad, hand it to the RE department and have Residential contact the customer to complete whatever information the bank needs.
Last edited by Rocky P; 05/07/15 06:27 PM. Reason: David types fast!
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top
#2012831 - 05/07/15 06:34 PM Re: Denial Reason/Switch Product Kisha
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 226
This helps A LOT! Thank you so much for all the valuable insight. Everything you're saying makes sense now that it's been explained in plain English to me. I admit, I have a hard time interpreting the regs in certain circumstances.

Thank you, both, for your time!

Return to Top
#2012866 - 05/07/15 08:18 PM Re: Denial Reason/Switch Product Rocky P
NSF, CRCM Offline
Gold Star
NSF, CRCM
Joined: Apr 2013
Posts: 410
VA
Originally Posted By Rocky P
and commercial LO's use a stickie on the back of the golf score pad.


This part just made me squirt water through my nose and onto my keyboard. grin
_________________________
It is better to act cautiously beforehand than to suffer afterward.

The answers I give are my opinions. Not legal advice.

Return to Top
#2013011 - 05/08/15 05:12 PM Re: Denial Reason/Switch Product Kisha
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Great reply Rocky! That reminded me of the application I once saw on a cocktail napkin. When I asked the loan officer about it, he said "you tell me to document what they said, so I wrote it down on what I had". smile
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top