I have a borrower that is being denied for Value and Collateral due to unacceptable appraisal. On the Averse Action letter is the credit score displayed in the notice? The reason for denial was not dealing with the credit score itself. Only the appraised value.

The credit score does not need to be listed on the AA Notice if it did not play a factor in the credit decision.

Thank you - I agree - Is this documented - We were just told by our software company that produces our AAN that the credit score is required no matter what. I disagreed. Now, I'm looking for documentation to support my argument.

Are you also checking this box??

__Our credit decision was based in whole or in part on information obtained in a report from the consumer reporting agency listed below.

Yes we are..

Why - you said that the credit report had no contribution to the denial. If you check that box, then that is why they are saying you have to also provide the credit score information. Your decision was not "based in whole or in part on information obtained in a report from the consumer reporting agency"

My mistake - we are checking the box that indicates Our credit decision was made in whole or in part on information obtained from an affiliate or from an outside source. Not the first box that would indicate the credit reporting agencies - Sorry - I was reading your response quickly -
I'm just looking to be pointed in the right direction where it is document that if the loan is denied for value or collateral - no credit scores are required to be indicated on the AAN due to the fact it was not based on the credit score.

If your reason for denial was due to an unacceptable appraisal, you should not be checking that box either. That box has to do with information obtained about an applicant's credit that is not listed in the applicant's credit report.

You're not going to find that. FCRA section 615 is what requires you to disclose the credit information when taking adverse action based on information contained in a credit report.

When you say unacceptable appraisal, do you mean the condition of the property is unacceptable? Or the report itself was unacceptable?

Also, you should check the option for information obtained from an outside source/affiliate when information was obtained from a person or affilaite (other than a consumer reporting agency) regarding the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

The July 15, 2011 final rule says this:
Section 1100F of the Dodd-Frank Act requires disclosure if a credit score was used in taking adverse action. A creditor that obtains a credit score and takes adverse action is required to disclose that score, unless the credit score played no role in the adverse action determination. If the credit score was a factor in the adverse action decision, even if it was not a significant factor, the creditor will have used the credit score for purposes of section 1100F of the Dodd- Frank Act.

For reference, here is the final rule: https://www.govinfo.gov/content/pkg/FR-2011-07-15/pdf/2011-17585.pdf

See FR page 41592 under the section "Use of a Credit Score." Here is another citation:

Use of a credit score. In some cases, a creditor that is required to provide an adverse action notice under the FCRA may use a consumer report, but not a credit score, in taking the adverse action. Under section 1100F of the Dodd-Frank Act, a person is not required to disclose a credit score and related information if a credit score is not used in taking the adverse action.

Therefore, the proposed amendments to Forms C–1 through C–5 generally were applicable only if a credit score was used in taking an adverse action....

@Swiggles . . . my understanding is you would check that box for an appraisal. An appraisal is an "outside source."

It's an outside source, but I think the general consensus is that an appraisal generally does not provide information on a person's "credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living."

Compliance NABW - that is not correct. An appraisal has nothing to do with the consumer.

How does it not opine on creditworthiness or credit capacity? It is part of a consumer's asset base that is used to determine how large (potentially) of a loan they can handle. That sounds like it speaks to credit capacity in my book.

[Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity,]

Credit is often denied or gets different pricing due to the LTV. The appraisal is used to determine LTV. This is "information obtained from a person other than a CRA" and it bears upon the consumer's credit capacity.

It has nothing to do with the consumer. Collateral is an inanimate object and has nothing to do with the consumer's credit worthiness, credit standing, or credit capacity.
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So, if the Creditor required the applicant to submit bank account information and subsequently denied the application because the applicant didn't have sufficient assets to support the credit, then you would say the same thing applies? The box would not be checked for "because of information obtained from a person other than a CRA?"

The information has to relate to the consumer themselves - so if you called their landlord and the landlord told you that they were consistently past due on their rent by more than 30 days, that would be an outside source that provided you information regarding the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. A bank statement or an appraisal is just a piece of paper and tells you nothing about the consumer themselves.

If you review the actual requirements from the FCRA it might be clearer.

(b) Adverse Action Based on Information Obtained from Third Parties Other than Consumer Reporting Agencies

(1) In general. Whenever credit for personal, family, or household purposes involving a consumer is denied or the charge for such credit is increased either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, the user of such information shall, within a reasonable period of time, upon the consumer's written request for the reasons for such adverse action received within sixty days after learning of such adverse action, disclose the nature of the information to the consumer. The user of such information shall clearly and accurately disclose to the consumer his right to make such written request at the time such adverse action is communicated to the consumer.

That is exactly the piece I read and was quoting from. Still trying to figure out how collateral value or statements about liquidity/assets don't play a role in a consumer's creditworthiness and/or credit capacity.

"Whenever credit . . . is denied or the charge for such credit is increased either wholly or PARTLY because of information obtained from a person (which includes businesses) other than a CRA bearing upon the consumer's creditworthiness, . . . credit capacity . . ."

How does a bank statement tell you nothing about a person? It tells you how much liquid assets they have. That's like saying their biweekly paycheck (a piece of paper) tells you nothing about a consumer. It tells how much money they make and, therefore, by extension, how much of a loan they can afford. Bank statements and appraisals do the same thing. Bank statements would also tell about the consumer's "mode of living," i.e. they like to spend a lot of money going to Red Lobster every few days.

Then you better start listing appraisers, other banks (although the consumer usually provides bank statements and not the other banks), investment firms, the IRS ,the county appraisal office, the NADA for vehicle valuations, and anyone else that gives you a speck of information on the customer concerning income and asset validation.

About the only exception to that would be an actual employment verification or other actual verification in which the employer or other party provided you with information that contributed to adverse action.

All I can say, is that you are going to be alone in doing it. I have been at this for 40 years since almost when the FCRA was first established. All I can say is, that is not the correct approach.

Well, it depends on if you use the information to deny or price higher, but, yeah, depending on the situation, I would. This is stuff that is related to creditworthiness, credit capacity, and mode of living. What else other than a Bank statement is really going to tell you about their mode of living? You ask one of their friends how often the applicant goes out to eat and how much they spend?

You ask the customer for copies of their bank statements. Those are not provided by the third party.

because of information obtained from a person other than a consumer reporting agency

But I give up.

Bank statements are not obtained from a third party/outside source. Randy has explained it as best as anyone possibly could. And value/type of collateral has nothing to do with credit 'references'. Nor does it have bearing on 'credit capacity'.

Well, they do come from an outside source at the end of the day (the Bank), but whatever. I'm likely sailing this boat alone, lol. I fail to see how you can say it has no bearing on credit capacity @RR joker. The value of the collateral is often directly related to how large of a loan one can obtain. So, for an average Joe borrower that comes in and applies for a $240,000 mortgage loan and their house is worth $200,000, your bank would readily make it to them because the collateral value has no bearing on credit capacity? Or, would the 120% LTV make you say, "Nah, we can't do a $240,000 loan, but we can do a $190,000 loan?" The asset value differentiates here between getting a $190k loan and a $240k loan. What does this $50k difference represent? It sounds like credit CAPACITY to me.