In our most recent external compliance audit we were written up for not having the Reg. B language stating that the applicant doesn't have to disclose alimony, child support, separate maintenance payments. Our application only prints this language if you tell it that the applicant has this type of income. If the applicant’s only source of income is social security, is this language required (ignoring the fact that the software vendor is lazy and should include it anyway)? The auditor states that this is a separate maintenance payment while the vendor disagrees.

There is no chicken or egg question here:

A creditor shall not inquire whether income stated in an application is derived from alimony, child support, or separate maintenance payments unless the creditor discloses to the applicant that such income need not be revealed if the applicant does not want the creditor to consider it in determining the applicant's creditworthiness.

You can't ask prior to disclosure.

While I agree that you disclose that to the applicant prior to asking and our officers are trained to do so, that doesn't fly with examiners and auditors. They want to see that on the application when it applies, I'm just trying to find out if there's any further clarification available on what constitutes those sources.

What application? One that the loan officer is filling out? As long as that is a part of the "script" the officers use, what does having the disclosure on an application that the customer never sees have to do with anything?

Our consumer loan applications have a space for income, with an asterisk, and then below that is the alimony/child support language. Is that sufficient? Recently, we hard that the disclosure language must actually appear ABOVE the space for indicating the income and the asterisk with language below is not sufficient. It's never been pointed out in an audit or exam, but we're wondering if we should change all of our applications? I see it both ways in the market.

Go to Appendix B: https://www.bankersonline.com/regulations/12-1002-appb

Read paragraphs 2 and 3. You don't see the warning on any of the model forms "after" the space.

This would be low-hanging fruit if regulators viewed your practice as a clear-cut violation. If we're not hearing about findings, then they probably see this as no worse than a gray area. Clearly, the rulewriters envisioned the alimony notice preceding the inquiry, but who's to say whether applicants read the footnote before completing the field? I'd put this on a list of possible changes for the next revision of this form. It's always safest to stick with the language and layout of model forms.