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#2225163 - 11/05/19 10:36 PM Adverse Action-Denial Reason
iheartcompliance Offline
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We recently denied a loan based solely on ineligible collateral. We DID pull their credit as well.
Even though their credit is not the reason it was denied, would we still need to include the disclosure that states “Our credit decision was based in whole or part on information obtained...”?

Thanks!

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#2225175 - 11/06/19 02:23 PM Re: Adverse Action-Denial Reason iheartcompliance
Gertie Offline
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We do. We have gone back & forth on this topic at our bank. Why do we need to include the statement or the credit score if it wasn't a reason to deny? I don't think so, but our FDIC field office believes otherwise. I decided the best practice is to provide it.

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#2225177 - 11/06/19 02:41 PM Re: Adverse Action-Denial Reason iheartcompliance
swiggles Offline
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If the decision is based solely on the collateral, and the decision is a denial, why would you inform the applicant that his/her credit report played a role in the denial decision, when it did not. Seems misinformation to me.
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#2225178 - 11/06/19 02:46 PM Re: Adverse Action-Denial Reason iheartcompliance
swiggles Offline
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Another thought on this subject......I recently applied for an auto loan with my daughter, who could not qualify on her own. The denial was based on HER credit. My score is 805 and have zero derogatory ANYTHING on it. The application was denied and EVERY denial I received, from this bank and that bank, included the paragraph you mentioned above, as well as my credit score and score information.....which was preceded by "we also obtained your credit score and used it in the decision." All that is incorrect. None of the banks used any information in my report to reach the denial decision, nor did my credit score play any part in the decision.
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#2225179 - 11/06/19 02:49 PM Re: Adverse Action-Denial Reason iheartcompliance
swiggles Offline
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And thanks for the info Gertie. My bank recently switched from Fed to FDIC.
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#2225263 - 11/07/19 05:21 PM Re: Adverse Action-Denial Reason iheartcompliance
Dan Persfull Offline
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Bloomington, IN
Gertie, what region are you in? I've never had any issues with our field examiners (Chicago Region).

If the credit score or information obtained in the consumer report played no part in the adverse action then those sections of the AAN should not be completed.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2225367 - 11/08/19 06:48 PM Re: Adverse Action-Denial Reason iheartcompliance
David Dickinson Offline
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Central City, NE
The FDIC in my region will cite you for over disclosing the FCRA info. I'm with Dan.

When I was a FDIC examiner (left in 1992), we had 2 internal memo's that said "STOP telling banks they have to disclose the use of the credit report when the credit report didn't lead to the denial).
Think about it: You're telling a consumer there's something wrong with their credit report - when there isn't.
You're forcing the CRA to provide a free copy of the consumer's credit report - an expense to the Agency.
Potentially, you're causing the consumer to waste time, money and energy worrying that there's something wrong with the credit history and they go through the motions of getting a free copy of the credit report only to find out there's isn't and issue.

You need to show this to your FDIC examiners and push back. They are wrong.
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#2225383 - 11/08/19 09:11 PM Re: Adverse Action-Denial Reason iheartcompliance
iheartcompliance Offline
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I agree with you Dan and David, we haven't been providing that disclosure statement on our adverse actions if credit was not a factor in the adverse action decision.
The issue is that we recently switched software programs and we have new documents we are required to use.

Our software provider told us this:

"So the disclosure paragraph is not inaccurate because you did pull the borrowers credit score when gathering information for the loan. Even though it is not the reason it was denied you still used it and that is why the disclosure states “in whole or part on information obtained”.

I don't believe they are correct...

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#2225387 - 11/08/19 09:31 PM Re: Adverse Action-Denial Reason iheartcompliance
swiggles Offline
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Quote
Our software provider told us this:

"So the disclosure paragraph is not inaccurate because you did pull the borrowers credit score when gathering information for the loan. Even though it is not the reason it was denied you still used it and that is why the disclosure states “in whole or part on information obtained”.


Not true. If the decision was a denial, how was the report used in that decision. They should read their own form, which probably says, "We also obtained your credit score and used it in our decision"..............which was a denial.

So then....as I posted above, how do all the big banks get away with doing that very thing?.....over-disclosing. Because without exception, my stellar, no de-rog score was disclosed to me on every single adverse action notice from every single lender.
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#2225388 - 11/08/19 09:31 PM Re: Adverse Action-Denial Reason iheartcompliance
Dan Persfull Offline
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Bloomington, IN
I don't believe they are correct...

You are correct. They are not.

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 . . . .

Ask them what information obtained in the consumer report was used in whole or in part to make the adverse decision.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2225391 - 11/08/19 10:02 PM Re: Adverse Action-Denial Reason iheartcompliance
Inherent_Risk Offline
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I don't think this is clear AT ALL. I want to agree with Dan/David's position, but there's a not frivilous argument that if you've ever made an exception to policy and considered the borrower's credit info in granting that exception, then you're considering credit in every decision. Nothing in the disclosure says "your credit is bad!" It just says it was "based in whole or in part on information obtained."

There's also an argument that if you have any sort of underwriting matrix set up (i.e. credit score over 700, LTV max of 100%; under 700, LTV max 90%), then the score was a factor. Even if you're in the top range, the criteria were set by your score.

Until there's some sort of clear guidance from regulators, I'd be real angry getting cited either way on this. I also wouldn't spend too much time/resources fighting a vendor to change it.

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#2225393 - 11/08/19 10:21 PM Re: Adverse Action-Denial Reason iheartcompliance
rlcarey Offline
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Galveston, TX
I would fight as the vender is wrong and I have also seen plenty of banks cited on this, just as David has. Either your decision was partially or wholly based on information in the credit report or is was not. There is no grey line. Between David and I, we have been in many, many banks of all kinds and have seen hundreds of Federal and State examination reports as a reference. You don't tell a customer that there is something in their credit report that contributed to a denial unless it is a fact that it did.
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#2225978 - 11/20/19 06:14 PM Re: Adverse Action-Denial Reason iheartcompliance
RR Joker Offline
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The Swamp
My field office {ATL} was also of that opinion and our software vendor even hardcoded it this way on our regular lending platform. I fought it [and am stubborn enough TO fight it] and won.
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