I was just asked what is required if the lender issues a conditional approval that is subject to the borrower reducing their credit limit on another existing product.

For example: They have applied for a credit card loan and the lender will approve the request if they reduce their limit on their existing personal line of credit.

I've not heard of this practice before. My first thought was that its an adverse action on the PLOC for which I was told "but the borrower agreed". I think that is walking a fine line, IMO.

Appreciate any thoughts!

Sounds like a Counter Offer and the borrower agreed. We don't do credit cards so I'm basing my answer on what we would do if it was a real estate loan. We would go ahead an issue a Counter Offer AAN stating whatever reason you required them to reduce their credit limit based on their original credit request and list the new "terms". If they go through with the loan, great, if they don't we do not have to worry about sending the Denial AAN later on.

It is an accepted counteroffer. If you are being asked what kind of notice is needed, you need a combined counteroffer notice (with adverse action) to formalize what was done verbally.

Commentary 1002.9(a)

6. Counteroffer combined with adverse action notice. A creditor that gives the applicant a combined counteroffer and adverse action notice that complies with §1002.9(a)(2) need not send a second adverse action notice if the applicant does not accept the counteroffer. A sample of a combined notice is contained in form C–4 of Appendix C to the regulation.