Skip to content
GeoDataVision
Page 1 of 2 1 2
Thread Options
#2163319 - 02/06/18 07:16 PM When to include FCRA disclosure(s)
bziegler Offline
New Poster
Joined: Feb 2018
Posts: 8
I have a client that is a commercial lender that does a soft pull of a consumer report on the individual loan guarantor. If any information from the credit report is used to decline the applicant, then the FCRA disclosure is included in the decline letter. However, in some cases the credit report is pulled and there is no negative information, but the application is denied for other reasons such as time in business or insufficient business revenue. Should an FCRA disclosure be included in these cases? The client can clearly demonstrate that the denial was not due to information in the credit report.

Return to Top
#2163331 - 02/06/18 07:45 PM Re: When to include FCRA disclosure(s) bziegler
Adam Witmer Offline
Power Poster
Joined: Sep 2010
Posts: 2,643
If you are referring to the AA notice requirements, a guarantor is not considered an applicant and, therefore, the FCRA info would not be required. https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-stinneford-07-14-00
_________________________
Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
www.compliancecohort.com

Return to Top
#2163341 - 02/06/18 08:06 PM Re: When to include FCRA disclosure(s) bziegler
bziegler Offline
New Poster
Joined: Feb 2018
Posts: 8
Thanks for your response. I appreciate it. I think mentioning a guarantor may have masked what I'm really trying to ask. Putting the guarantor concept aside, the question that I'm really trying to answer is whether or not the act of pulling a consumer report would trigger the requirement to include at least the first paragraph of the FCRA disclosure or whether the decline truly has to be based on information in the credit report. I know that the regulation specifically states that the decision to decline has to be based in whole or in part on information in the credit report to trigger the requirement, but there is some concern that regulators may interpret this as meaning that if a credit report was "used in the underwriting process" then the FCRA requirement is triggered even if the reason for decline was not from the report. Any opinion on this?

Return to Top
#2163343 - 02/06/18 08:08 PM Re: When to include FCRA disclosure(s) Adam Witmer
bziegler Offline
New Poster
Joined: Feb 2018
Posts: 8
Hi Adam - what would your opinion be in the case of a sole proprietorship? In that case would you consider applicant and guarantor to be one in the same?

Return to Top
#2163377 - 02/06/18 09:25 PM Re: When to include FCRA disclosure(s) bziegler
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,785
Cape Cod
Why would you consider a loan to a sole proprietor to have a guarantor? It's individual credit, period.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#2163381 - 02/06/18 09:40 PM Re: When to include FCRA disclosure(s) bziegler
bziegler Offline
New Poster
Joined: Feb 2018
Posts: 8
Thanks for the feedback John! That makes sense. The question that I'm really trying to answer is whether or not the act of pulling a consumer report would trigger the requirement to include at least the first paragraph of the FCRA disclosure or whether the decline truly has to be based on information in the credit report. I know that the regulation specifically states that the decision to decline has to be based in whole or in part on information in the credit report to trigger the requirement, but there is some concern that regulators may interpret this as meaning that if a credit report was "used in the underwriting process" then the FCRA requirement is triggered even if the reason for decline was not from the report. Any opinion on this?

Return to Top
#2163494 - 02/07/18 06:00 PM Re: When to include FCRA disclosure(s) bziegler
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes, there is a high correlation between having a denial and using the credit report, but it's not absolute. This is from my webinar on Adverse Action Notices:

If adverse action is taken, but the decision to deny the applicant is not on the basis of information in a consumer credit report, banks should not t report that a credit report was pulled. This has historically been a confusing issue because many regulators have wrongly stated that financial institutions are required to disclose the use of the consumer credit report whenever a credit report is obtained. Such a position is not supported by the FCRA, which states such disclosure is required only when such action is made on the basis, partially or wholly, of information from a consumer reporting agency.

Regulation B Adverse Action Reasons vs. FCRA Adverse Action Notice Requirements:
The Equal Credit Opportunity Act (ECOA) requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or from its own files. Disclosing that a credit report was obtained and used in the denial of the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant’s credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy Section 1002.9(b)(2) [reasons for denial] the creditor must disclose that the application was denied because of the applicant’s delinquent credit obligations. To satisfy the FCRA requirement, the creditor must also disclose that a credit report was obtained and used in the denial of the application. [Commentary to §1002.9(b)(2) #9].

Regulation B Adverse Action Reasons and FCRA Adverse Action Notice Correlation:
There must be a correlation between the FCRA box and reason for denial, such as:
1. Excessive obligations in relation to income
2. No credit file
3. Limited credit experience
4. Delinquent . . . with others
5. Garnishment . . . collection action or judgment
6. Bankruptcy
7. Slow or past due in trade or loan payments
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2221011 - 09/05/19 04:47 PM Re: When to include FCRA disclosure(s) bziegler
Cheli Offline
Platinum Poster
Cheli
Joined: May 2013
Posts: 919
Good afternoon- This appears to be a great thread to piggy-back off of.

We're denying a loan due to DTI (so information found on the credit report) AND collateral not being sufficient (info in appraisal report).
Lending department is asking if they should check both FCRA boxes; that their did decision was based whole or in part on info from a CRA AND the credit decision was based whole or in part on info from an affiliate or outside source other than the CRA).

Gurus, would you be able to help me with the thought process?

Return to Top
#2221021 - 09/05/19 05:07 PM Re: When to include FCRA disclosure(s) bziegler
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,893
Galveston, TX
An appraisal has nothing to do with the consumer. It is not an outside source regarding the consumer.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2221032 - 09/05/19 06:41 PM Re: When to include FCRA disclosure(s) bziegler
Cheli Offline
Platinum Poster
Cheli
Joined: May 2013
Posts: 919
Well, that confuses me even more, because the 2nd box is checked when the application is denied and it's not related at all to a consumer's credit worthiness i.e., related to the credit report. They check the 2nd box (typically when the collateral is the sole reason for not being able to extend credit). The reasoning (or argument they stand on) is that it relates to the customer's credit capacity (not having the LTV, or collateral that the FI is willing to place a lien on).

The foundation of this decision came from a BOL question below...am I misunderstanding something?


QUESTION: In a scenario where the appraised value came in low, would an appraisal be considered as 3rd party information?

ANSWER: The second checkbox is checked in Part II of the adverse action notice if, according to the FCRA, the credit is denied 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 issue of whether an appraiser is such a third party has been the subject of disagreement. We believe an appraiser is such a third party since the appraisal impacts the consumer's credit capacity. A borrower's credit capacity is generally higher in a secured transaction.

Return to Top
#2221034 - 09/05/19 07:21 PM Re: When to include FCRA disclosure(s) bziegler
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,893
Galveston, TX
Well, whoever or wherever you got that Q&A from was absolutely dead wrong. The property offered as collateral has absolutely nothing to do with the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2221035 - 09/05/19 07:25 PM Re: When to include FCRA disclosure(s) bziegler
Inherent_Risk Offline
Gold Star
Joined: Jan 2017
Posts: 395
"The issue of whether an appraiser is such a third party has been the subject of disagreement."

I think that may have been true in the past. I don't think there is very much disagreement anymore. There's a pretty strong consensus behind what randy is saying.

Return to Top
#2221038 - 09/05/19 07:55 PM Re: When to include FCRA disclosure(s) bziegler
Cheli Offline
Platinum Poster
Cheli
Joined: May 2013
Posts: 919
Thank you so much for feedback.
The Q&A was from May 2019 from BOL Learning Connect's webinar.
We changed procedures partially due to this opinion (and one other source that agrees with BOL)...and now the lending department wants to mark both boxes...oy'

Return to Top
#2271481 - 06/09/22 09:00 PM Re: When to include FCRA disclosure(s) Cheli
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
Originally Posted by Cheli
Thank you so much for feedback.
The Q&A was from May 2019 from BOL Learning Connect's webinar.
We changed procedures partially due to this opinion (and one other source that agrees with BOL)...and now the lending department wants to mark both boxes...oy'

We had a long discussion in another thread about this. I am of those who considers information from an appraisal as something that requires the 2nd box to be checked. it very well can effect credit capacity, imho.

Return to Top
#2271483 - 06/09/22 09:05 PM Re: When to include FCRA disclosure(s) bziegler
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636

Return to Top
#2271523 - 06/10/22 05:59 PM Re: When to include FCRA disclosure(s) bziegler
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,542
On the Net
This could go back and forth but suffice it to say Jack's opinion is Jack's opinion and it may be very conservative. But the FCRA requires third party info disclosures when it is used to, "deny credit for personal, family, or household purposes or increase the charge for such credit based in whole or in part on 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..."

Jack's belief is that credit capacity may be effected by the appraisal. Credit capacity is the ability to repay a given amount of credit. Typically when we think of the appraisal in the context of this question, it's because it comes back low and the bank won't accept that collateral alone because of the low loan to value. That is collateral value issue and not any of the third party criteria listed in the notice requirements. If the value came back high and the seller upped the price and the applicant couldn't afford that, maybe that's related to credit capacity but that isn't what this application is for and presumably there would be a sales contract in place with a price agreed upon.

Either way, I would disagree with an appraiser being a third party for these notice requirements. The FCRA doesn't define who the third party may be, other than it is neither the applicant nor lender and it applies under the conditions listed. So if the argument is "someone said," that doesn't meet the FCRA context as I read the rule.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2271969 - 06/22/22 06:11 PM Re: When to include FCRA disclosure(s) Andy_Z
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
Originally Posted by Andy_Z
This could go back and forth but suffice it to say Jack's opinion is Jack's opinion and it may be very conservative. But the FCRA requires third party info disclosures when it is used to, "deny credit for personal, family, or household purposes or increase the charge for such credit based in whole or in part on 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..."

Jack's belief is that credit capacity may be effected by the appraisal. Credit capacity is the ability to repay a given amount of credit. Typically when we think of the appraisal in the context of this question, it's because it comes back low and the bank won't accept that collateral alone because of the low loan to value. That is collateral value issue and not any of the third party criteria listed in the notice requirements. If the value came back high and the seller upped the price and the applicant couldn't afford that, maybe that's related to credit capacity but that isn't what this application is for and presumably there would be a sales contract in place with a price agreed upon.

Either way, I would disagree with an appraiser being a third party for these notice requirements. The FCRA doesn't define who the third party may be, other than it is neither the applicant nor lender and it applies under the conditions listed. So if the argument is "someone said," that doesn't meet the FCRA context as I read the rule.

@Andy - As I noted in the other thread, once the creditor makes the choice to use the collateral value as a deciding factor, then this does result in it having a bearing on creditworthiness and credit capacity, as those terms are understood in a generic manner. It impacted whether they were worthy to receive the extension of credit and it impacted the capacity (debt load), i.e. the amount of the extension of credit they could receive.

Return to Top
#2271986 - 06/22/22 10:35 PM Re: When to include FCRA disclosure(s) bziegler
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,893
Galveston, TX
The value of property has absolutely nothing to do with a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

It just means that do not have sufficient collateral. Do you list the NADA Used Car Pricing booklet when they ask to refinance their car and the car does not have sufficient value do you? Do you list your own internal employee that does an evaluation of the property when an appraisal is not required?

It is the same dang thing.

I have been at this for 40 plus years and have never did this in any organization that I have been involved with and neither did any of my clients and I have been in probably 100 banks.

If this was required by the FCRA as you say, why, not once, did a regulator not ever write anyone up???
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2272718 - 07/12/22 11:58 PM Re: When to include FCRA disclosure(s) rlcarey
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
Originally Posted by rlcarey
The value of property has absolutely nothing to do with a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

It just means that do not have sufficient collateral. Do you list the NADA Used Car Pricing booklet when they ask to refinance their car and the car does not have sufficient value do you? Do you list your own internal employee that does an evaluation of the property when an appraisal is not required?

It is the same dang thing.

I have been at this for 40 plus years and have never did this in any organization that I have been involved with and neither did any of my clients and I have been in probably 100 banks.

If this was required by the FCRA as you say, why, not once, did a regulator not ever write anyone up???

Neither of those is really an outside source. You buy the NADA booklet and look it up. The employee is internal.

Return to Top
#2272719 - 07/13/22 12:01 AM Re: When to include FCRA disclosure(s) bziegler
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
Do used car loans really get declined on value, lol? One would be an idiot to really think a used car is a solid source of repayment. But, for residential home lending, collateral value is a highly relevant factor in determining credit capacity, i.e. debt load.

Return to Top
#2272720 - 07/13/22 12:05 AM Re: When to include FCRA disclosure(s) Andy_Z
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
Originally Posted by Andy_Z
This could go back and forth but suffice it to say Jack's opinion is Jack's opinion and it may be very conservative. But the FCRA requires third party info disclosures when it is used to, "deny credit for personal, family, or household purposes or increase the charge for such credit based in whole or in part on 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..."

Jack's belief is that credit capacity may be effected by the appraisal. Credit capacity is the ability to repay a given amount of credit. Typically when we think of the appraisal in the context of this question, it's because it comes back low and the bank won't accept that collateral alone because of the low loan to value. That is collateral value issue and not any of the third party criteria listed in the notice requirements. If the value came back high and the seller upped the price and the applicant couldn't afford that, maybe that's related to credit capacity but that isn't what this application is for and presumably there would be a sales contract in place with a price agreed upon.

Either way, I would disagree with an appraiser being a third party for these notice requirements. The FCRA doesn't define who the third party may be, other than it is neither the applicant nor lender and it applies under the conditions listed. So if the argument is "someone said," that doesn't meet the FCRA context as I read the rule.

https://study.com/academy/lesson/credit-capacity-definition-ratios-examples.html

Credit Capacity focuses on the DTI. D = Debt. Collateral value of a home generally plays a role in the amount of the loan, i.e. the debt; therefore, collateral value plays a role in determining DTI, as the D part of the ratio is determined, in part, by the collateral value.

Return to Top
#2272721 - 07/13/22 12:06 AM Re: When to include FCRA disclosure(s) bziegler
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,636
But, anyway, I don't think I can be convinced otherwise here and those on the other side seem to feel the same way.

Return to Top
#2272956 - 07/15/22 09:29 PM Re: When to include FCRA disclosure(s) Inherent_Risk
Monster Offline
Gold Star
Joined: Sep 2015
Posts: 489
Inherent Risk: "The issue of whether an appraiser is such a third party has been the subject of disagreement."

I think that may have been true in the past. I don't think there is very much disagreement anymore. There's a pretty strong consensus behind what randy is saying.


I've been reading through older (2003-2018) threads related to this, and I have to say I really thought there used to be 2 (more equal in size) camps on this, around 5+ years ago, but haven't been able to find any supporting posts of this "memory." It seems clear to me now, even though I worked for a few banks that would check the 3rd party box when denying due to the appraisal value, that the vast majority, and myself, see the appraisal as not relating to credit capacity. Those banks never got dinged for it while I was with them, I'm confident in saying... but it likely wasn't a priority of examiners. I also think the comparison to ATR isn't too much of a stretch.

Providing a link (members only) to ABA that also agrees, to give another example outside of BOL.

https://www.aba.com/banking-topics/...isclosures-inadequate-property-appraisal
Last edited by Monster; 07/15/22 09:33 PM.
Return to Top
#2272963 - 07/15/22 10:46 PM Re: When to include FCRA disclosure(s) bziegler
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,893
Galveston, TX
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2272964 - 07/15/22 10:48 PM Re: When to include FCRA disclosure(s) bziegler
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 79,893
Galveston, TX
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
Page 1 of 2 1 2