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#2198841 - 11/20/18 11:20 PM Denial Action Date
HMDA Warrior Offline
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I'm having a difference of opinion with a fellow HMDA compliance officer and need a third party's view.

Reg C states that we can report either the date the decision was made, or the date that the borrower was notified for Denied loans.

Official interpretation of Paragraph 4(a)(8)(ii)

1. Action taken date - general. A financial institution reports the date of the action taken.

2. Action taken date - applications denied and files closed for incompleteness. For applications, including requests for a preapproval, that are denied or for files closed for incompleteness, the financial institution reports either the date the action was taken or the date the notice was sent to the applicant.


We (the company) have stated that we report the date that the Statement of Denial was sent to the borrower as the Action Date on Denied applications. This decision was made before I came to work here.

My concern is files that have evidence that the decision was made in 2017, but the Statement of Denial was not sent to the borrower until 2018. For example, a note in the file dated 9/12/2017 states "Appraised value came in low, seller will not drop purchase price. Decline." but the Statement of Denial was not processed and mailed to the borrower until 6/4/2018.

We clearly have a Reg B violation for not sending the borrower the statement within 30 days of the Decision, but what about the Action Date for Reg C?

The interpretation for Action Date continues for Originated Loans and states that the date of Closing or the date of Disbursement may be used as the Action Date, but not if the Disbursement date is in a different year than the Closing date. It would seem that this should hold true for Denied loans as well, but it is not specifically addressed in the Reg or Interpretation as it is for Originated loans.

5. Action taken date - originations. For covered loan originations, including a preapproval request that leads to an origination by the financial institution, an institution generally reports the closing or account opening date. For covered loan originations that an institution acquires from a party that initially received the application, the institution reports either the closing or account opening date, or the date the institution acquired the covered loan from the party that initially received the application. If the disbursement of funds takes place on a date later than the closing or account opening date, the institution may use the date of initial disbursement. For a construction/permanent covered loan, the institution reports either the closing or account opening date, or the date the covered loan converts to the permanent financing. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of covered loans). Notwithstanding this flexibility regarding the use of the closing or account opening date in connection with reporting the date action was taken, the institution must report the origination as occurring in the year in which the origination goes to closing or the account is opened.

I believe that due to the fact that it crosses the end of one year into another, the Action Date should be date of the decision (9/12/2017) and it would also be a Reg C violation if reported as the date the notice was sent (6/4/2018).

My Co-worker's opinion is that because the company has stated that we report the date that the notice was sent to the borrower, the Action Date should be 6/4/2018 and it is not a violation because we are consistent with our process.

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#2198854 - 11/21/18 02:15 PM Re: Denial Action Date HMDA Warrior
Adam Witmer Offline
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I agree with you that you clearly have a Regulation B violation, but the answer to your question is a bit tricky. On one hand, if you always wait until you deliver the notice, what happens if that denial had gotten "lost" and an AA notice was never sent? Would you just exclude it from your LAR? That, of course, would be a Reg C violation.

However, I have long been an advocate for reporting the date of action as the date on the denial notice. After reviewing many HMDA files at many different banks, I have found it to be much cleaner to just list the date on the AA notice. If you try to start listing the date it was denied, the paper trail becomes a huge logistical challenge.

In fact, I really only recall one bank using the date of the denial notice. In their case, every single application went to the loan committee so they would have a copy of the loan committee minutes in the denied file. They were consistent with this (which was fine from an audit perspective), but they physically used a sharpie to cross out all of the information about every other application listed on the loan committee minutes, meaning that if 9 applications were denied, they had nine different versions of the loan committee minutes included in the applicable denial files. Again, that was fine but it was quite a bit of extra work and just wasn't as clean as listing the date on the AA notice.

Typically, if a loan was denied on December 30 and the AA notice didn't go out until January 5 (within the 30 day notification time-frame under Regulation B), I wouldn't see any problems with reporting that application in the new year. In your case, however, there was a clear violation of Regulation B. Therefore, I think that a Reg C violation is debatable, but I don't know that I would cite it as a major issue if it only happened once on your LAR. If it was a systematic practice, however, I would focus my criticism on the Regulation B violation as once that is corrected, the Reg C concern goes away.
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#2198885 - 11/21/18 05:25 PM Re: Denial Action Date HMDA Warrior
David Dickinson Offline
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Central City, NE
Notwithstanding this flexibility regarding the use of the closing or account opening date in connection with reporting the date action was taken, the institution must report the origination as occurring in the year in which the origination goes to closing or the account is opened.
This is the key. You can't cross a year, even if it's your policy to report things at a later time. This is true for rescindable loans and construction/perm loans as well. For instance, if you reported when rescindable loans were advanced vs. when they were originated, you don't get the option to report the advance date if it crosses a year - even if that's your policy.

Adam gives an example of a denial on 12/30 and there AAN being sent on 1/5. I don't think you can report it as of 1/5. Your only option is 12/30. Admittedly, the commentary uses the words "origination" but every reference given indicates they want all applications to be reported in the same year as the action was taken.

I would insist the bank reconsider their position on this. As Adam pointed out, it only causes problems for those that enter the info, as well as auditors and examiners. I can look at the note or AAN and verify it is correct easily when the dates match. If you're using some other date (even if permitted), it causes everyone to have to verify another date. Why would anyone want this approach?
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#2198907 - 11/21/18 07:14 PM Re: Denial Action Date HMDA Warrior
HMDA Warrior Offline
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This is bigger than a one-off situation. The cause and resulting back-log of Denials have been addressed; we should not continue to have this problem going forward, but I have many of them on the 2018 LAR at this time. I am not certain that Denial is the only Action Taken that is being treated this way, but that is currently the easiest to address and resolve.

The current frame of mind is "if we didn't report it last year, it must be on this year's LAR" My concern is that if this year's LAR was audited, then how many Action Date errors would we have because of this process? I'm trying to build my argument for changing this process for 2019.

David, I am a little confused by your response. You stated that Adam's example of using the AAN date of 1/5 would not be correct because it crosses the year. However in the next paragraph you seem to be saying that using the date of the decision is difficult to document so why would anyone take that approach. Could you clarify?

As I see it, you can't have it both ways. If you always use the date of the AAN, then you always have some that overlap the end of the year. The only way to prevent this is to have a process that ensures that the AAN goes out when the decision is made, not within 30 days of the decision, or even the day after and that doesn't seem like a viable solution for us at this time.

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#2198929 - 11/21/18 09:25 PM Re: Denial Action Date HMDA Warrior
David Dickinson Offline
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Central City, NE
Quote:
David, I am a little confused by your response. You stated that Adam's example of using the AAN date of 1/5 would not be correct because it crosses the year. However in the next paragraph you seem to be saying that using the date of the decision is difficult to document so why would anyone take that approach. Could you clarify?


I'm not saying the date of decision is difficult to DOCUMENT. I'm saying the date is difficult to prove or reference when entering the info on your LAR and when auditors/examiners are verifying it.

For instance, the date on the AAN is clearly stated. If that date was on the LAR, I can verify it and move on. If you're entering the date the AAN was sent, how do I know that the LAR is right? Likewise for loans with rescission. The date on the note is easy to see and can be verified on the LAR with no effort. But if you use the date of advancement, I have to find out when that is to verify it. That's extra steps that just aren't necessary, so why would anyone choose that option?
Last edited by David Dickinson; 11/21/18 09:25 PM.
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#2198930 - 11/21/18 09:29 PM Re: Denial Action Date HMDA Warrior
David Dickinson Offline
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Quote:
As I see it, you can't have it both ways. If you always use the date of the AAN, then you always have some that overlap the end of the year. The only way to prevent this is to have a process that ensures that the AAN goes out when the decision is made, not within 30 days of the decision, or even the day after and that doesn't seem like a viable solution for us at this time.


The regulation says:
The financial institution reports either the date the action was taken or the date the notice was sent to the applicant.
What date do you put on the AAN? If it's the date of decision (which is what I typically see), then the AAN can be mailed up to 30 days following that date, but the LAR is easily verified. The Action Taken Date on the LAR matches the same date on the AAN. There is no overlap at the end of the year and you don't have to ensure the AAN goes out when the decision is made (you have 30 days).
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#2198934 - 11/21/18 10:41 PM Re: Denial Action Date HMDA Warrior
HMDA Warrior Offline
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I see what you are saying.

If we put the date that the decision was made on the AAN, then we have documented decision date to use for reporting purposes.

If the only date on the AAN is the date it was sent to the borrower and there is a note elsewhere in the file, then using the date of the note as the Action Date on the LAR is harder to support in an audit.

Thank you.

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#2198937 - 11/21/18 10:58 PM Re: Denial Action Date HMDA Warrior
Adam Witmer Offline
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Originally Posted By David Dickinson
[quote]What date do you put on the AAN? If it's the date of decision (which is what I typically see), then the AAN can be mailed up to 30 days following that date, but the LAR is easily verified.

I think this is where the confusion may be. I have seen several instances where the date on the AA Notice is not the date of denial but rather the date the notice is prepared and thus the date it was sent to the applicant. In my experience, this date may or may not correspond to the technical date the application was denied. The reason for this, for example, is a lender may deny the application on Monday and then send it to a processor who creates the AA Notice on Thursday (with Thursday's date) and then sends it out the same day. Other times, like I explained above, a loan committee or senior lender will deny the application and then the lender will prepare and send out the AA Notice several days later. Technically, a bank has 30 days under Regulation B to prepare an AA Notice after they deny an application.

I completely agree that for auditing purposes, it is always cleaner (i.e. easier for everyone) to report the date on the AA notice.
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2198974 - 11/26/18 01:53 PM Re: Denial Action Date HMDA Warrior
Inherent_Risk Offline
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Does a bank have to be consistent with which date it uses for denials? Can it be inconsistent between divisions? The commentary for origination rule seems pretty clear, but can a bank use that same guidance for denials?

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#2199093 - 11/27/18 01:04 PM Re: Denial Action Date HMDA Warrior
Adam Witmer Offline
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You are correct that the commentary for originations (and applications approved but not accepted) is clear that you should generally be consistent but can vary your method. While the commentary doesn't specifically address variations for other types of action (like denials), I wouldn't see an issue if you had two different departments (in-house vs secondary market) using different methods. I would, however, be consistent within each department.

The key, of course, it to make a clear paper trail for an examiner or auditor to understand what date you used. It could potentially get complicated when multiple departments are using multiple methods.
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2281172 - 02/15/23 10:22 PM Re: Denial Action Date Adam Witmer
kbaird Offline
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Posts: 35
I'm going to piggyback on this older post since I am not finding the issue addressed anywhere else and it is somewhat related.

Do the regulations specifically require that a date be included on the Adverse Action Notice (AAN) sent to an applicant? I am not seeing anything that specifically addresses this in Reg B. and it is something that has been brought up by some of our small business lenders where there has been an occasional AAN sent without a date on it.

There is documentation on Credit Memo's indicating when the decision to deny the application was made, but on a handful of occasions, no date was included on the AAN itself.

Thanks for any input on this.

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#2281175 - 02/15/23 11:03 PM Re: Denial Action Date HMDA Warrior
rlcarey Online
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I would be hesitant to use any form that did not follow the model AAN forms in Appendix C of Regulation B:

Form C–1—Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change

Date:____________________
Applicant's Name:____________________
Applicant's Address:____________________
Description of Account, Transaction, or Requested Credit:____________________
Description of Action Taken:____________________

Part I—Principal Reason(s) for Credit Denial, Termination, or Other Action Taken Concerning Credit

This section must be completed in all instances.

__Credit application incomplete
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#2281194 - 02/16/23 03:06 PM Re: Denial Action Date rlcarey
kbaird Offline
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Posts: 35
Thanks rlcarey...I had not thought to check the model forms and that gives me the answer I was looking for.

Appreciate the input!

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