Looking at our process for denials. If we deny someone but tell them we would reconsider an application with a qualified co-signer, they bring in the co-signer but still do not qualify- do we owe the original applicant one or two adverse action notices? I've had it in my mind that we owed two and that is how we do things currently, but underwriting would like to verbally ask for a co-signer and include them on the application without sending anything out in writing. I'm second guessing myself on whether or not that would be ok to do.

It depends.

Under Reg B: You only owe the primary applicant an AAN.
When an application involves more than one applicant, notification need only be given to one of them, but must be given to the primary applicant where one is readily apparent [§1002.9(f)].

FCRA: If you pull the credit report of the co-signer and it has adverse information, then you owe the co-signer (co-applicant) a FCRA denial notice.
When there are two (or more) applicants, a creditor must provide an adverse action notice to both applicants if the application is denied, even in part, based on information in a co-applicant’s consumer report. [2011 FTC Staff Interpretations page 83] An applicant with strong credit who receives an adverse action notice will likely understand that the adverse action decision was based on the co-applicant’s credit information or will contact the creditor to inquire. [Federal Register/Vol. 76, No. 136/7-15-11/Rules and Regulations – Page 41596]

They would each get an AAN on the "second" application (the joint application). But what I am trying to figure out is if we need to send an AAN for the "first" application (the single application, prior to the co-signer even being added). IOW, does borrower #1 get one or two AANs?

If during the application process you tell me, "Andy, you don't qualify but you might with a co-signer, do you have one?" you have made a credit decision. I deserve a denial.

If during that app process I say I do and I bring someone in, it's still the same app because you haven't denied me yet, so I'll walk away with just one denial. If you sent me the denial and I came in later with a C/S and you review that request, I'd say the first is already put away, this is a second loan request and I'd be owed a second denial.

If I came in for an unsecured $30K loan you might say Andy you don't qualify for that, do you have collateral? To me, that is the same as above. I say no, you deny me. I come back in and say I now have a car, a 2001 Kia that almost runs, That is a second request and it's another denial.

I recall an application "series" where the applicant didn't qualify on his own and so brought in 3 different co-signers, none of whom qualified......4 denials. Poor guy. He either ran out of friends, or gave up.

Questions on Adverse Action. Our applications are all by phone. We run DU on every one to see if we get an approval or denial. If we get an approval on DU and the "applicant(s)" wants to move forward, we then send out Disclosures and start processing the loan. If we get a denial and therefore need to "add" or "remove" someone for credit or income, in order to get an approval from DU, BEFORE disclosures are sent, then do we need to send out an Adverse Action and start a new loan? Is it different if we have already sent out Disclosures?