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#20502 - 06/12/02 03:25 PM Notice of Action Taken for loan denials
Anonymous
Unregistered

If a bank denies a loan due to the value of the collateral based on a an appraisal of the collateral, do we need to mark the box that says "Our decision was based in whole or part on information obtained from an affiliate or from an outside source, etc? I thought this box was only for disclosure of "credit"information on the applicant. I pulled Reg B and it talks about "information" recieved from other source, but doesn't specifiy what types of information.

Thanks, Kim

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#20503 - 06/12/02 04:33 PM Re: Notice of Action Taken for loan denials
Lestie G Offline

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Joined: May 2002
Posts: 3,606
Near the Land of Enchantment
You definitely wouldn't want to check the credit bureau box, so as a practical matter, you'd have to check the other box or the letter is going to be pretty worthless to your applicant. That's the approach we've taken to these - trying to comply with the spirit as well as the letter!
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#20504 - 06/12/02 04:44 PM Re: Notice of Action Taken for loan denials
Rick Tryon Offline
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Rick Tryon
Joined: Mar 2002
Posts: 169
Clinton IN, USA
I agree Kim needs to mark the box "outside source other than credit reporting agency". But couldn't there be a scenario in which neither box would be checked. I.e. a customer applies for credit and gives you a VOI at the time of app. You determine based on the request and the VOI that they are out of debt ratio. Perhaps you also check the other accounts they have with you and see that they haven't paid as agreed on those. You could deny this request and your denial would not be based on any outside source, credit reporting agency or otherwise. Is this line of thinking correct?

Opinions expressed here are mine, not necessarily my employers. this is not legal advice.
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Opinions expressed here are mine, not necessarily my employers. This is not legal advice.

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#20505 - 06/12/02 04:59 PM Re: Notice of Action Taken for loan denials
NotALawyer Offline
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NotALawyer
Joined: Nov 2001
Posts: 455
(I just went through this will our Legal department, so I thought I'd chime in...)

I would disagree that either box (credit report/information from third party) should be checked in this case because the reason for denial is not the result of information obtained about the credit/character of the applicant. FCRA requires that the consumer must be informed if information is obtained from a third party or affiliate on the consumer's credit worthiness that results in the consumer being denied credit. It would be sufficient to indicate unacceptable collateral, insufficient collateral value, or whatever your institution would use given these circumstances.

15 USC Sec. 1681m(b)(1) states:

Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the reasons for such adverse action received within sixty days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer.


Just my two cents...

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#20506 - 06/12/02 07:34 PM Re: Notice of Action Taken for loan denials
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 10,056
Toano, VA
Why discuss the appraisal report at all? The applicant can't do anything about the appraisal. AA notices are supposed to be educational. Why not disclose that the action is being taken due to insufficient downpayment? It's within the applicant's control to inject more equity bringing the LTV up to your standards so the loan could be approved.
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...gone fishing.

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#20507 - 06/13/02 12:24 AM Re: Notice of Action Taken for loan denials
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
The "other 3rd party" box should be marked when OUTSIDE information leads to the denial. If you order an appraisal, it is your information, not 3rd party info. You should mark the "other 3rd party" box when adverse info comes from a land lord, employer, other creditor, etc.
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David Dickinson
http://www.bankerscompliance.com

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#20508 - 06/13/02 01:57 PM Re: Notice of Action Taken for loan denials
Howard Lax Offline
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Howard Lax
Joined: Jan 2002
Posts: 478
Bloomfield Hills, Michigan
You are all missing a fundamental issue here. The appraisal is a report about the property, not the borrower. Think about this - if the appraisal was about the borrower, each appraiser and each MLS service, etc., would be a credit reporting agency subject to FCRA. Hence, it is not covered by Section 615(b) of FCRA, which reads:

(b) Adverse action based on information obtained from third parties other than consumer reporting agencies.
(1) In general. Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly
because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the reasons for such adverse action received within sixty days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer.

(2) Duties of person taking certain actions based on information provided by affiliate.
(A) Duties, generally. If a person takes an action described in subparagraph (B) with respect to a consumer, based in whole or in part on information described in subparagraph (C), the person shall (i) notify the consumer of the action, including a statement that the consumer may obtain the information in accordance with clause (ii); and (ii) upon a written request from the consumer received within 60 days after transmittal of the notice required by clause (I), disclose to the consumer the nature of the information upon which the action is based by not later than 30 days after receipt of the request.
(B) Action described. An action referred to in subparagraph (A) is an adverse action described in section 603(k)(1)(A) [ 1681a], taken in connection with a transaction initiated by the consumer, or any adverse action described in clause (i) or (ii) of section 603(k)(1)(B) [ 1681a].
(C) Information described. Information referred to in subparagraph (A)
(i) except as provided in clause (ii), is information that
(I) is furnished to the person taking the action by a person related by common ownership or affiliated by common corporate control to the person taking the action; and
(II) bears on the credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living of the consumer; and
(ii) does not include (I) information solely as to transactions or experiences between the consumer and the person furnishing the information; or
(II) information in a consumer report.
_________________________
Howard A. Lax Lipson, Neilson, et. al. Bloomfield Hills, MI hlax@lipsonneilson.com

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#20509 - 06/13/02 05:45 PM Re: Notice of Action Taken for loan denials
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
Thank you, Howard!

It is easy to get confused when dealing with multiple regulations. The most important thing you can do to resolve this kind of confusion is go back to each regulation's statement of purpose, coverage and definitions.

Regulation B allows creditors to combine the adverse action notice for Reg B with the adverse action notice for Fair Credit Reporting. Reg B requires you to identify the action, the reasons for the action, and to provide the consumer with the ECOA statement.

In the case of the FCRA notification, it is triggered only by information about the consumer. The appraisal is information about the property. Information about the property, even though coming through a third party such as the appraiser, does not trigger the FCRA.


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#20510 - 06/13/02 10:32 PM Re: Notice of Action Taken for loan denials
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Dang! I went 3 days without being wrong and now Howard pulls that one on me!

Seriously, I think I've gone 3 minutes without being wrong. Howard (& Lucy) is right.
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David Dickinson
http://www.bankerscompliance.com

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