I know Reg B says we cannot discourage a borrower from applying for a loan. However, we have a customer who has applied for several loans and each has been denied for valid reasons (including reasons stemming from submission of potentially fraudulent documentation). Each time we deny the customer, he asserts discrimination and makes things difficult. Can we not accept applications from him any longer (we're going to close his accounts as well)?

How is not accepting an application from a consumer not discouraging that consumer to apply for a loan?

I agree with Dan. That WOULD be discouragement. And if this applicant is alleging discrimination and files a compliant with your regulator, you don't want any evidence of discouragement to show up in the investigation. Make sure all of your files are well documented in anticipation of an investigation by your regulator.

Correct me if I'm wrong, but Reg B only says you can't discourage borrowers on a prohibited basis, right? It sounds like you would be both discriminating against and discouraging this applicant, but for apparently valid reasons. I agree with swiggles that you'll want to have some pretty clear documentation for everything that happened in this situation, as well as your investigation into their discrimination complaint.

I'm also curious as to how you don't accept an application without it being a denial. You can tell him not to apply (discouragement), but if he makes "an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested." I think if you don't accept it, you've denied it, and have to go through denial procedures. Am I wrong on this?

I can see both points here and while I understand the spirit and intent of Reg B, I don't think regulators or lawmakers ever intended for us to be caught in a perpetual state of application and denial. As with FCRA, there has to be a way to treat these as frivolous.

I would document, document, document, and when the time comes make a risk-based management decision and stick to it. I'd probably let my primary regulator know as well.

At my prior bank, we had a similar incident....a minority (1 person-2 minority classifications) applied and we denied her based on her credit. She came back with a co-signer in tow (also a minority)...bad credit...denial. Then brought in yet another co-signer (minority) bad credit....denial. She contacted our regulator alleging that we denied her out of discrimination. The regulators pounced on that like a dog on a bone. 'Course, found no discrimination occurred. I just wouldn't want to add to the scenario with someone also alleging discouragement on top of discrimination.

Thanks for all of the feedback. Coming from both a fair lending and compliance background, I get the concerns. But, we're caught in a bad spot, as Norman spelled out. Management is outraged that after the previous issues, that another app was taken. We are actually looking to exit all business with this customer on his other accounts with us for a number of reasons, unrelated to his mortgage applications. But, I'm just not sure how we do that and not have potential risk.

In todays age some applicants are savvy and no the rules. Hate to say it but they may be trying to trip you up. Best to treat them like you would anyone else. There is no number of times that an applicant can apply for a loan and once the applicant reaches the number is unable to apply. Put aside the annoyance the applicant is causing and look at it as each request is a new request regardless of who it comes from and should be treated that way.