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#2212596 - 05/01/19 07:17 PM Adverse Actions
Lizz Offline
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Joined: Aug 2013
Posts: 128
Dunkirk NY
Just trying to get this straight in my head:

On an adverse action letter - Is there a time that you do not have the credit score information along with the key factors on the letter -when it plays no role in the adverse action determination - such as Value to Collateral or Unacceptable Appraisal - Incomplete loan file - after REG B Expires??

We currently use DOC Magic and the they want the credit score information list on any and all Adverse Actions.... no matter if it is collateral only - incomplete file (with no prior credit decisions) Just getting confused from what I always knew... or maybe I was misinformed - just want to get it right.

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Lending Compliance
#2212613 - 05/01/19 08:24 PM Re: Adverse Actions Lizz
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
They are just flat wrong.

Sec. 615. Requirements on users of consumer reports

(a) Duties of users taking adverse actions on the basis of information contained in consumer reports. If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2212629 - 05/01/19 09:40 PM Re: Adverse Actions Lizz
Gertie Offline
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Joined: Jan 2016
Posts: 83
I agree with Randy.

However.......... Several years ago I went back & forth with co-workers regarding this topic & was out voted. Not satisfied, I reached out to our compliance advisory company & they sided with my co-workers; still not satisfied I reached out to our examiners who also sided against me.

Yep, I caved. We include the score, even if the reason for denial was due to value & in no way connected to the credit report. I still think I am correct!

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#2212634 - 05/01/19 10:43 PM Re: Adverse Actions Lizz
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
I would just hand them this and walk away:

https://consumercomplianceoutlook.org/20...nder-ecoa-fcra/
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2212658 - 05/02/19 01:26 PM Re: Adverse Actions Lizz
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,658
This is a great question and I seem to be one of the few who has long taken a different approach to this. For the sake of discussion - and my desire to understand the rules as good as possible - I'm going to take a deep-dive on this, so bear with me. Let me explain...

I could be wrong, but the only thing I see in the rule is when the credit score and related information (range, date, factors, etc.) must be included on the AA notice. The rule says you must provide this information if it played a factor in the credit decision.

What I don't see in the rule is a clear statement telling us we can't include the information if it didn't - or may not have, such if there is "ambiguity" whether or not it - played a role in the credit decision. For example, the Consumer Compliance Outlook article Randy references only says this: "But if the credit score did not play a role in the decision to take adverse action, these disclosures are not required." To me, this says they aren't required - which is what the rule says, telling us when they are required, but this does not, IMHO, say you can't include this information if the credit score did not play a role in the decision to take further adverse action.

I have researched this many, many times, and have found nothing beyond goes beyond this Consumer Compliance Outlook article, which really just summarizes the language from the final rule and doesn't clearly say you can't include the credit score and related information.

In fact, when you look at the July 15, 2011 final rule, there is also nothing that clearly says you can't include the information if it isn't required, and there are actually a few sections that even might imply that error on the side of caution (being overly broad when there is "some ambiguity") is okay:

"Some industry commenters requested that the Board revise this language to allow a creditor in all cases to disclose that the creditor ``may have used'' the credit score in making the credit decision because the commenters believe there are circumstances where it may be ambiguous whether a creditor used a credit score. For example, one commenter stated that if a creditor judgmentally evaluates a joint application, it might not be clear whether the underwriter used one of the co-applicants' credit score. To ensure compliance with section 1100F of the Dodd-Frank Act, these commenters noted that many creditors may prefer to disclose the applicant's credit score (along with related information) whenever they receive a score as part of the application process. To facilitate this, the commenters suggested that the Board change the new model language in Appendix C to indicate that the creditor ``may have used'' the credit score in making the credit decision. These commenters asserted that this revised language would allow creditors to provide credit score disclosures even if there is some ambiguity regarding whether a credit score was used in the credit decision without raising the question of whether the model language is accurate.

The model forms do not include the suggested change. The commenters' suggestion would result in all consumers receiving a disclosure stating that their credit score ``may'' have been used. The Board believes that modifying the language in model forms C-1 through C-5 as suggested by commenters would likely confuse consumers, would not be consistent with the statute, and would substantially decrease the value of the disclosures for consumers. Creditors may still use the language in the model form stating that the creditor ``used'' a credit score (instead of ``may have used''), even if there is some ambiguity regarding whether a credit score obtained by the creditor was considered in a judgmental evaluation. As discussed further below, the Board does not believe that section 1100F of the Dodd-Frank Act sets a high threshold for what constitutes use of a credit score."


And below you can see that the only thing said is that a person “is not required” to provide the credit score if it wasn’t used in the credit decision – it doesn’t (clearly) say you can’t provide it.

"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[/b]. 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. Some industry commenters stated that creditors should not be required to disclose credit score information when a creditor obtains but does not use a credit score, or when the credit score was not the primary cause of the adverse action decision.

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."


Going back to the Consumer Compliance Outlook article, it also appears to me that the "common violations" section still only focuses on when the information must be included, not when it can't.

"Violations involving the FCRA’s requirement to include credit score information in adverse action notices typically involve failing to recognize when the requirement applies. The disclosure requirements are triggered when a credit score is used by a person in taking adverse action. Some violations have occurred when persons interpreted the term “use” too narrowly to include only situations when adverse action is solely or primarily based on the credit score. Similarly, other violations have involved persons incorrectly providing additional credit score disclosures only in cases when a minimum credit score was established. To avoid these violations, a person must provide the additional credit score disclosures whenever a credit score is used in the decision to take adverse action."

Again, all of this talks about when the credit score and related information is required, not when it can't be listed.

All of that said, I recognize that auditors and examiners have written banks up for including it when it wasn't required (which I don't believe is technically correct). Therefore, whenever I teach on this, I always recommend the best practice to not list the credit score and related information when it isn't required. However, if a financial institution was being cited for providing this information when it wasn't clearly required, I don't believe that is technically correct, IMHO.

Again, I know this opinion is in the minority, so I will be interested to hear thoughts. (Again, keep in mind I believe the best practice is to not list it only so you don't have to have a conversation/argument with an audit examiner, but I don't believe it should be cited as a violation if the information is included in the AA notice when it isn't clearly required. My goal is to have a discussion of the technical requirement, not what an examiner has said as I have seen them say both approaches.)
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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.
www.compliancecohort.com

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#2212665 - 05/02/19 02:13 PM Re: Adverse Actions Lizz
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
This all goes back to the days when obtaining a copy of your credit report was a real pain in the you know what. Now, you can get a copy from a wide variety of sources. But a lender taking adverse action based on a credit report gives the consumer the right to a free report.

Sec 612 (b) Free disclosure after adverse notice to consumer. Each consumer reporting agency that maintains a file on a consumer shall make all disclosures pursuant to section 609 [§ 1681g] without charge to the consumer if, not later than 60 days after receipt by such consumer of a notification pursuant to section 615 [§ 1681m], or of a notification from a debt collection agency affiliated with that consumer reporting agency stating that the consumer&fcra-39;s credit rating may be or has been adversely affected, the consumer makes a request under section 609 [§ 1681g].

But it really comes down to telling the consumer the truth. Why would you tell them that you denied the loan based on in whole or in part on their credit report. This makes the consumer think that there is something wrong with their credit and it actually played no part in the decision.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2212681 - 05/02/19 03:20 PM Re: Adverse Actions Lizz
Lizz Offline
100 Club
Joined: Aug 2013
Posts: 128
Dunkirk NY
Thank you so much for your input... I have been going back and fourth with our Loan Dept. - that sides with everything that our software company that we are using DOC Magic - and I feeling as though that are over complaining - they actually told our loan dept. that we have been doing our AA notices wrong - which is interesting, since we have been doing these for years and years and when through an OCC exam and no a software company is telling us we were.. its maddening...

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#2212989 - 05/07/19 04:05 PM Re: Adverse Actions Lizz
Truffle Royale Offline

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Posts: 17,395
A bit late but I cannot resist chiming in on know-it-all software companies. They're not the ones facing the examiners.
I have an ongoing situation here with Encompass. I've sent them the law and case study numerous times but they still insist that we cannot do what the law says we can. It's maddening to have their Mavent report come up wrong time after time but they refuse to back down. I've just documented and move on.

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