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#2194292 - 10/01/18 04:34 PM Action Taken on a Business Purpose Loan Request
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Does no written adverse action notification need to be given to business credit applicants with revenues of $1 million or less if the application contains the notices required by (a)(2)(ii) and (b)(1)?
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#2194301 - 10/01/18 05:26 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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It must be in a form the applicant can retain, so having it on the application form (that is turned in) won't work.
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#2194316 - 10/01/18 06:17 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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What section is that requirement?
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#2194319 - 10/01/18 06:22 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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Never mind - 1002.4(d)(1)
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#2194323 - 10/01/18 06:26 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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Basically the application (9.13.18) was on behalf of an entity that was going to be formed by 16 people to build a motel, with the 16 individuals to be guarantors. It was a telephone application. On 9.27.17 the lender was informed that the loan was going to be by the 16 individuals and that they no longer were going to create an entity. The lender brought the the request to the board that day and the board does not want to do the loan.

So since it was a telephone application (1002.9(a)(3)(i)(C), are we ok with just a verbal notice even thought the customer never received the required disclosures in writing, or must we still send a written notice?
Last edited by Likes to Comply; 10/01/18 06:40 PM.
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#2194326 - 10/01/18 06:50 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
John Burnett Online
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You may provide an oral statement of the action taken and of the applicants' right to a statement of reasons for your adverse action. You do not have to include the ECOA notice is that oral notice even though the applicants didn't receive it earlier. This option is only available under 1002.9(a)(3)(i)(C) if the application was made entirely by phone.
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#2194329 - 10/01/18 07:10 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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My opinion: Pretty tough to prove if questioned by auditors/examiners. I'd recommend sending a written AAN. In fact, my opinion is to always follow the consumer AAN requirements for "small businesses". If it's a "large business" (gross >$1M), there are shortcuts, but the small business exemptions are difficult, full of strange exceptions and difficult to prove if challenged.
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#2194333 - 10/01/18 07:24 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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I need to be sure I understand - please confirm - for business credit $1 million or less -

If on the application we provided the "right to statement of specific reasons" and the ECOA notice in a form the customer could keep, then we could give orally give the statement of action taken and be done.

If it was not provided in a manner the customer could keep, then we could provide the statement of action taken orally, but must still provide "right to statement of specific reasons' and the ECOA notice in writing.

If the application was by telephone, we can provide oral notice of the action and their right to request the specific reasons but do not have to orally provide the ECOA notice, period.
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#2194336 - 10/01/18 07:32 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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Its our internal procedure to always send a written AAN for "small businesses" but I am getting push back on this particular request and so I have to be careful that I don't make it appear that our stricter internal procedure is the actual regulation requirement.

Would all 16 of the applicants get a AAN? We don't have an actual application from them individually or joint intent. Just a lender statement in the file that the loan request is now for all 16 individuals instead of an entity.
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#2194353 - 10/01/18 08:17 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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Here's how we explain it (in plain English) in our Denial training manual:

VI. Notification to Non-Consumer Credit Applicants [§1002.9(a)(3)]:

A. Businesses with Gross Revenues of $1,000,000 or less (preceding fiscal year):
Subject to the same notification requirements as consumers, except:

1. Statement of Action Taken
May be given orally or in writing, when adverse action is taken (including the Equal Credit Opportunity Act notice and regulator address); and

2. Statement of Reasons:
Disclosure of an applicant’s right to a statement of reasons may be given at time of application, instead of when adverse action is taken, provided the disclosure:

a. Is in a form the applicant may retain;

b. Contains a statement that the bank will give specific reasons for the action taken within 30 days of an applicant’s request, provided the request is dated within 60 days of the bank’s original notification of action taken;

c. Contains the Equal Credit Opportunity Act notice;

d. Contains the name and address of the bank; and,

e. Contains the name and address of the bank’s regulator; or,

3. Telephone Applications:
For an application made solely by telephone, a bank may give an oral statement of the action taken and of the applicant’s right to a statement of reasons for adverse action.
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#2194358 - 10/01/18 08:20 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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Quote:
Would all 16 of the applicants get a AAN?

You must send it to the primary applicant. If you can't determine who that is, you could provide it to one of them:
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)].

Quote:
We don't have an actual application from them individually or joint intent.

You must have joint intent documentation. The loan officers documentation might suffice. I would use this as a training opportunity.
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#2194361 - 10/01/18 08:40 PM Re: Action Taken on a Business Purpose Loan Request David Dickinson
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"b. Contains a statement that the bank will give specific reasons for the action taken within 30 days of an applicant’s request, provided the request is dated within 60 days of the bank’s original notification of action taken;

c. Contains the Equal Credit Opportunity Act notice;

d. Contains the name and address of the bank; and,

e. Contains the name and address of the bank’s regulator; or,"

Needs a phone number for the bank as well, doesn't it?

"(ii) A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained."

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#2194365 - 10/01/18 08:55 PM Re: Action Taken on a Business Purpose Loan Request David Dickinson
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Do you really need joint-intent from guarantors? The whole point of joint intent at application is to show that the bank didn't require someone else's signature on the credit instrument. Why would you need to prove that you didn't require a person's signature in situations where you CAN require their signature.

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#2194410 - 10/02/18 02:13 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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Quote:
Do you really need joint-intent from guarantors? The whole point of joint intent at application is to show that the bank didn't require someone else's signature on the credit instrument. Why would you need to prove that you didn't require a person's signature in situations where you CAN require their signature.


Look at the definition of "applicant" in Reg B. It says (in layman's terms) "for purposes of joint intent, guarantors are applicants".
If you require guarantors (which you can only do if they are principal's of an entity), then joint intent is a moot issue (as you obviously understand), because you're asking them to verify they volunteered to be liable. They didn't. You made them.

If the guarantors volunteered themselves you do need joint intent. You didn't say if the 16 were all required guarantors or voluntarily agreed. Since the entity hasn't been formed yet (as you stated in your 4th post), I don't know how you could make any of them guaranty the loan. The entity doesn't exist yet so how are there partner's, directors, shareholders or officers of the entity? Thus, I think you need joint intent documentation in this case.
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#2194411 - 10/02/18 02:21 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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Quote:
Needs a phone number for the bank as well, doesn't it?


You're right.

Here's the verbatim requirements for a small business denial:

(3) Notification to business credit applicants. For business credit, a creditor shall comply with the notification requirements of this section in the following manner:

(i) With regard to a business that had gross revenues of $1 million or less in its preceding fiscal year (other than an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit), a creditor shall comply with paragraphs (a)(1) and (2) of this section, except that:

(A) The statement of the action taken may be given orally or in writing, when adverse action is taken;

(B) Disclosure of an applicant's right to a statement of reasons may be given at the time of application, instead of when adverse action is taken, provided the disclosure contains the information required by paragraph (a)(2)(ii) of this section and the ECOA notice specified in paragraph (b)(1) of this section;

(C) For an application made entirely by telephone, a creditor satisfies the requirements of paragraph (a)(3)(i) of this section by an oral statement of the action taken and of the applicant's right to a statement of reasons for adverse action.


§1002.9(a)(ii) does require a phone number:

A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation.
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#2194413 - 10/02/18 02:22 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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My last citation should have been §1002.9(a)(2)(ii)
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#2194417 - 10/02/18 02:40 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
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Sorry, I was overly broad in my question, and I missed the part in this case where they hadn't formed (and never ended up forming) the entity.

I was thinking of a case where the guarantors CAN be required (partners, directors, or officers). Is there any requirement to get joint-intent if they volunteer themselves without you requiring them (or before you do)?

If Jack and Jill, the principals of Up the Hill LLC, apply for a loan in the name of Up the Hill LLC and volunteer to be guarantors, is there any requirement to get joint intent? Does it matter if you would have required them had they not volunteered?

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#2194426 - 10/02/18 03:18 PM Re: Action Taken on a Business Purpose Loan Request Inherent_Risk
Adam Witmer Online
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Originally Posted By Inherent_Risk
Is there any requirement to get joint-intent if they volunteer themselves without you requiring them (or before you do)?

If Jack and Jill, the principals of Up the Hill LLC, apply for a loan in the name of Up the Hill LLC and volunteer to be guarantors, is there any requirement to get joint intent? Does it matter if you would have required them had they not volunteered?

Most banks just get the joint intent so they don't have to worry about proving that the bank didn't require a specific guarantor. If they didn't apply contemporaneously, volunteered later, and you didn't get their joint intent, then you need to clearly document your file that your underwriting did not require a guarantor and that they were volunteering on their own. The FDIC has gotten pretty uptight about voluntary guarantors in the past and (I believe it was them that) even recommended getting a statement of the guarantor's voluntary consent in writing. Therefore, it is often just easier to get their joint intent.

That said, if the guarantor applied contemporaneously with the applicant/application, joint intent must be obtained because guarantors are considered applicants for purposes of joint intent.
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#2194486 - 10/02/18 07:13 PM Re: Action Taken on a Business Purpose Loan Request Likes to Comply
David Dickinson Offline
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Quote:
Is there any requirement to get joint-intent if they volunteer themselves without you requiring them (or before you do)?


Yes. As Adam stated "if the guarantor applied contemporaneously with the applicant/application, joint intent must be obtained because guarantors are considered applicants for purposes of joint intent."

As I pointed out, look at the definition of "applicant" in Reg B and you'll see that the regulation specifically says guarantors are applicants. If you have more than 1 applicant, you must have joint intent documentation. Therefore, you need it in the case you described, unless they are required guarantors, but can only be when they are partners, directors, officers or shareholders of an entity. Since the entity doesn't yet exist, I don't know how you can say you required them to guaranty the loan. Therefore, the loan you describe requires joint intent documentation.

It doesn't have to be a form that all 16 fill out, but there has to be something from the applicant(s) saying "all 16 will guaranty the loan". In other words, prove the loan officer didn't mandate this.

In January 2018, the KC FRB issued a Memo through their "Fed Connections" email entitled "Ensuring Compliance with Regulation B's Signature Provisions". In this, they describe how you can document join intent. It states, in part:
Finally, absent written applications or applicant acknowledgement on other joint intent disclosures, the loan officer may simply ask the applicants about their intentions and document it via a note to the credit file. By dating the loan officer's note, banks may be able to document that the applicants' intentions were determined contemporaneously with the application for the credit.

This might help your situation.
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