If an applicant is denied for credit because there are collection actions on the credit report, is it OK to just give that reason (collection actions), or should we also disclose delinquent credit since that is what a collection action stems from?

I think "collection" covers "delinquent credit". I don't know that it would be wrong to mark both, just unnecessary.

Thanks, David. OK....guess I am too OCD. Anyway, that is what we do here (collection action if that is all there is).....not what we did at my former bank (had to mark both collection action AND delinquent credit). .

We would only mark 'Collection' in a case like this.

swiggles: I'd call that "belt and suspenders".

Ha, David.....well, I should base ANYTHING on what my immediately previous bank did.

I have a question about a Denial as well and need an opinion. As I read the comment below, a Negative Credit Decision was communicated somewhere to this Borrower as some debt needs to be paid off to proceed, but the Borrower says I don't have the funds, so I feel it's a Denial. Of course UW doesn't have any "verification docs" so it will not be Denied, but they will insist it should be Withdrawn. Please somebody help the light bulb come on in my head...I'm sure I'm missing something in my understanding!!!

Cash Out Refinance - DTI is 42.97% - this is the note in the file:

Borrower came into Branch and requested to withdraw application because they have to payoff other debt first before qualifying to refinance current loans. They don't have the funds to payoff debt at this point to refinance loan and need some time. They requested in person to withdraw application.

Key words---"have to payoff debt first before qualifying". That says they don't meet the benchmarks, and the only way to know if they "have to payoff debt first before qualifying" is if someone ran some numbers, which obviously they did since you have a DTI. A withdrawal happens before a decision is made. The bank made a decision---borrower doesn't meet the standard, needs to payoff some debt, and come back to try again. It's a denial, even if only based on stated information.

Thanks Dani! That is EXACTLY how I see this, but for some reason our UW dept will only deny this file if there are verification docs to prove it and to me that is not what the Regulation states...which I have discussed here many times and many people seem to agree so I don't know why in the world I keep on questioning myself...LOL!

I am going to just let the UW document why they aren't denying the file and move on b/c there is obviously no changing their minds and nobody sees a need to consult Compliance with what I am trying to say.

Thanks again for your consult!

If they need verification docs to deny a file, then why are they running numbers at all on stated information???? There own practice contradicts their reasoning for not issuing a denial notice.

The UW has never reviewed this file and that is what they keep coming back to...only the Underwriters are "allowed" to make and communicate a credit decision so I guess that is where I struggle in how these procedures work here in this larger institution.

The Loan Officer at the branch took this application, ran credit and based upon the credit and what it shows as DTI on the system (based upon stated income of course), then the Loan Officer made this stmt that I copied above to the Borrower. Now "technically" only an UW is supposed to give a "credit decision", but we all know in the real world that just isn't how things work, so to me by that stmt in the file the Loan Officer said to this Borrower shows he made a credit decision even though he isn't supposed to.

The UW states when you send a file like this over to them, well I've never reviewed and made a credit decision and there is nothing in the file for me to be able to make a credit decision, so this file needs to be Withdrawn, but I have a hard time moving past the statement that obviously has been made to the Borrower.

Ok, I see the issue. Unfortunately, just because UW did not make/communicate a decision, the Bank did (even if the LO was not "authorized" to do so) and owes the applicant an AAN. In this case, someone needs to generate one for this applicant, and the process needs to be evaluated to prevent more issues down the road (eventually someone is going to sue or an examiner is going to find it and write it up).

Since UW is the only authorized party to make a decision, you might look at taking away the LO's the ability to pull credit. Or you need to develop a work-around for AANs on LO "decisions" that UW decides not to touch.

So if I come into your bank, talk with a loan officer and am told "sorry, we can't help you with this application", it's not a denial? If t's your your policy that only underwriters can deny loans, I think you have a lot of Reg B & C issues. Dani is right.

Shew...I AGREE!!! Thanks David also for the input...makes me feel better to just keep up the "fight" (so to speak...and of course respectfully) up until maybe somebody listens

Hey guys...let me ask you one more question.

Lets say you are auditing a file maybe 2 months later for Reg B purposes to ensure a proper credit decision was made and you find that a file should have been Denied instead of being Withdrawn. Is there anything Regulatory wise I don't know about that states we can't overturn a Withdrawn decision and issue a Denial to correct the error? What do you guys do?

Send a AAN.

Thanks Randy for your response! That was my thinking as well, but I was just told we should not ever send out an AAN notice 2 months later after a file was Withdrawn, but I'm thinking OK, so why are we wasting time second reviewing the file at all???? In a real world it would be great to be only a day or two out, but as with everybody else, there is only so much time in a day to get it all done, so it doesn't always happen the very next day/week. The bottom line is in my opinion, are we in Compliance with Reg B for notification and Reg C for reporting and if not, then we need to make whatever corrections are necessary to ensure we are....IMO.

Thanks again!

The applicant can withdraw the request, not the bank.
The withdrawal can only occur before the bank makes a decision on the loan.

If you are talking about "system" definitions that is one thing.
An AAN needs to be sent if it were a denial.

Don't confuse regulatory definitions with what a system may call something.

Hey thanks Rocky P...that is correct...a negative credit decision was made to this Borrower and it is documented in the file, however in error we allowed the file to be Withdrawn b/c the Borrower requested to Withdraw the file. Clear documentation leads us to believe this is in error and the file should be Denied. I even posted the comment above several days ago and everybody agreed it should have been Denied. So once I discussed the file with UW here they too agreed we should have Denied.

Now we got somebody else telling us we can't issue a Denial 2 months later....that is where the problem has occurred.

By whom were you told? That person is advising to break federal law and NOT provide the customer with an adverse action notice? Yes, it would be a violation according to Reg B timeframes. But it is better to catch your own errors and rectify prior to exam time. But you also have to devise a way for this not to happen in the future. Citing the reason as...not enough time to get it done....definitely won't fly with examiners.

You need to issue the AAN. Your applicant has certain rights due to the denial and they are owed the AAN, regardless of how late you get it out to them.

Also, doing so is the right thing to do. Keep in mind this 'corrects' nothing. You still have a violation that you need to document, show how you made right by the applicant (send the AAN!) and then train and monitor going forward.

Agreed!!!! I was told by another Dept that we weren't allowed to reverse a file and send out notices 2 months later. But I am like you, I would rather correct the problem and be in Compliance than not correct at all even if it is 2 months later.

Much better that the bank discover, correct the error and train than the examiners criticize it in an exam.
One shows that the bank has a management system and it works. The other shows that compliance management may be haphazard.

Ask them where it says that. I would hazard a guess that this "prohibition" is driven by some misguided bank policy or staff's aversion to saying "oops, my bad, Mr. Customer, I messed up." There is nothing in the reg prohibiting the bank from sending a late AAN.You owe the applicant an AAN regardless of if you sent it out on time or late.

Thanks everybody so much for all the input!