Skip to content
BOL Conferences
Learn More - Click Here!

New Reply Thread Options
#2283645 - 04/20/23 06:13 PM Potential ECOA/Reg B violation
Compliance Nut Offline
100 Club
Joined: Feb 2016
Posts: 198
I am concerned about a potential ECOA/Reg B violation and wanted to get some feedback.

It is our procedure that an application is not considered complete until we have received a signed notice of intent to proceed. My concern is that while we have received enough documentation to render a decision (subject to various verifications, etc. which is customary), we are not sending an AAN for denied loans unless we have a notice of intent to proceed.

Per the official interpretation of § 1002.2(f), I understand that "A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants." But, is expecting a notice of intent to proceed pushing it? I feel like we would have a lot of applicants where the LO has probably told them we can't make the loan, so you aren't likely to get then to sign a notice of intent to proceed before giving the reasons for denial, etc.

On another HMDA-related note: We very low application volumes in certain majority census tracts. By not treating these as a completed applications, we end up looking like we aren't getting any volume from these areas at all. When, we may have had applications, but they weren't reported for HMDA.

Any thoughts/recommendations would be appreciated.

Return to Top Reply Quote Quick Reply Quick Quote
#2283654 - 04/20/23 07:03 PM Re: Potential ECOA/Reg B violation Compliance Nut
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
You have an application, although it may be incomplete as soon as the applicant provides you with an intention to obtain a loan from you. Someone has bastardized the TRID intent to proceed process with the definition of an application under Regulation B. You have some real issues here.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2283659 - 04/20/23 07:19 PM Re: Potential ECOA/Reg B violation Compliance Nut
Compliance Nut Offline
100 Club
Joined: Feb 2016
Posts: 198
Our 30-day clock doesn't start ticking for ECOA purposes until we receive a notice of intent to proceed from the applicant.

Unfortunately, a prior compliance officer advocated for this and I have no idea why. I cannot even imagine in what universe this would be acceptable.

Return to Top Reply Quote Quick Reply Quick Quote
#2283660 - 04/20/23 07:25 PM Re: Potential ECOA/Reg B violation Compliance Nut
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Agreed, that it would not be in this universe.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2283690 - 04/21/23 02:30 PM Re: Potential ECOA/Reg B violation Compliance Nut
Anonymous
Unregistered

A completed application and an application are not the same thing under Reg B. I think requiring an intent to proceed to constitute a completed application makes a lot of sense. I wouldn't spend time making credit decisions on applications without an intent to proceed, but your ECOA obligations get triggered at application, not when you get a completed application.

"we are not sending an AAN for denied loans unless we have a notice of intent to proceed" That's not ok even if you don't have an application.

1002.2(f)-3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under § 1002.9.

Return to Top Reply Quote Quick Reply Quick Quote
#2284903 - 05/24/23 11:16 AM Re: Potential ECOA/Reg B violation Compliance Nut
Compliance Nut Offline
100 Club
Joined: Feb 2016
Posts: 198
Resurrecting this thread, as I have new info.

What I learned is that the LO can decline a loan without having a signed intent to proceed, if they have enough information to make that decision. For example, if the score is too low to qualify, the application doesn't make it's way to underwriting, the LO can go ahead and decline it and send the adverse action notice.

Where the notice of intent comes into play is when it's determined that the application should go to an underwriter. It's in those cases that a signed intent to proceed is required.

This is how applications are treated for Reg B purposes. Is there anything about this that could be a concern?

I also have a HMDA related question - is it okay to only report the applications that went to underwriting (had a signed intent to proceed), and NOT report the applications that were denied by the LOs (that did not have a signed intent to proceed)?

Return to Top Reply Quote Quick Reply Quick Quote
#2284905 - 05/24/23 11:29 AM Re: Potential ECOA/Reg B violation Compliance Nut
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
As long as the loan officer denies the loan within three business days of receipt of the application, you are done. If they do not, then you need to get your disclosures out.

Yes, of course they have to be reported.

Leaving such credit decisions in the hands of individual loan officers in this day and age is a huge fair lending risk.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2284934 - 05/24/23 06:37 PM Re: Potential ECOA/Reg B violation Compliance Nut
Inherent_Risk Offline
Platinum Poster
Joined: Jan 2017
Posts: 570
If you're denying inquiries or prequalifications, then those would not be reported on your LAR even though they would be applications under Reg B once they are denied. Lenders are able to define what constitutes an application under Reg B and HMDA according to their own practices and procedures, but it has to be based on your actual practices, and it has to be reasonable. Waiting for a signed intent to proceed, which I'm assuming is after an LE, wouldn't be reasonable. Certainly not if LOs are evaluating and denying these before then.

ECOA application commentary

2. Procedures used. The term “procedures” refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor's stated policy is to require all applications to be in writing on the creditor's application form, but the creditor also makes credit decisions based on oral requests, the creditor's procedures are to accept both oral and written applications.

3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under § 1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks. (See comment 9-5 for further discussion of prequalification requests; see comment 2(f)-5 for a discussion of preapproval requests.)

HMDA Application Commentary
1. Consistency with Regulation B. Bureau interpretations that appear in the official commentary to Regulation B (Equal Credit Opportunity Act, 12 CFR part 1002, Supplement I) are generally applicable to the definition of application under Regulation C. However, under Regulation C the definition of an application does not include prequalification requests.

2. Prequalification. A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective loan applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution's normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the loan/application register, even though these requests may constitute applications under Regulation B for purposes of adverse action notices.

Return to Top Reply Quote Quick Reply Quick Quote
#2284943 - 05/24/23 07:50 PM Re: Potential ECOA/Reg B violation Compliance Nut
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Lenders are able to define what constitutes an application under Reg B and HMDA according to their own practices and procedures,

I know I am in the minority with this opinion but I do not agree with this statement.

(f) Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit. A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.

2(f) Application.
1. General. A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.

IMO this OI gives the FI the latitude to establish its process for accepting applications but it does not give the FI the latitude to define what an application is. It does give them the latitude to establish what information they need from the applicant in order to have a complete application.

If you accept application by mail and I mail you an application with my name, contact information and the amount of credit I'm seeking you have an application. It may be an incomplete application but nonetheless its an application submitted via your FI's application process.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top Reply Quote Quick Reply Quick Quote
#2284944 - 05/24/23 07:54 PM Re: Potential ECOA/Reg B violation Compliance Nut
InFairness, CRCM Offline
Platinum Poster
InFairness, CRCM
Joined: Nov 2010
Posts: 919
USA
If you have enough information to decline an application, you have an application.
_________________________
Opinions are strictly my own, and have nothing to do with my employer.

Return to Top Reply Quote Quick Reply Quick Quote
#2284984 - 05/25/23 03:58 PM Re: Potential ECOA/Reg B violation Compliance Nut
Inherent_Risk Offline
Platinum Poster
Joined: Jan 2017
Posts: 570
I'm not 100% sure you're in the minority (or wrong), but I personally disagree. I can't square your reading with comment 3 about inquiries not tripping an application unless you communicate a denial. I've also never heard of a bank getting into trouble for lining up the TRID 6 pieces of information with Reg B and Reg C application, and I know a lot of institutions do so.

Return to Top Reply Quote Quick Reply Quick Quote
#2284987 - 05/25/23 04:48 PM Re: Potential ECOA/Reg B violation Compliance Nut
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
What I am having a hard time reconciling are these two statements.

What I learned is that the LO can decline a loan without having a signed intent to proceed, if they have enough information to make that decision.

I also have a HMDA related question - is it okay to only report the applications that went to underwriting (had a signed intent to proceed), and NOT report the applications that were denied by the LOs (that did not have a signed intent to proceed)?

If you do not have an application, how can you deny the credit request. If the credit request was for a home related loan purpose and they have enough information to make a credit decision, how can that not be considered an application under HMDA? Loans are reported all the time for an incomplete application. You do not have to have a complete application to make the loan HMDA reportable.

And then I will go back to my original statement. Allowing individual loan officers to make this decision is just asking for fair lending trouble.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top Reply Quote Quick Reply Quick Quote
#2285006 - 05/26/23 01:26 PM Re: Potential ECOA/Reg B violation Compliance Nut
Rocky P Online
Power Poster
Joined: Jun 2003
Posts: 7,650
Florida
For ECOA, if the lender has enough information to make a decision and conveys it to the applicant, a notice is required. How simple can it be?

Customer - I want to get a home-improvement loan.
LO - Where do you live?
Customer - Eagle Condominiums.
LO - Sorry, we don't lend there, it's not FHA approved.

Customer to the bank they wanted a loan, and where they lived. Loan officer evaluated the information and communicated it to the borrower. Most likely never reported, but it not what the customer asks, it's how the lender replies.
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top Reply Quote Quick Reply Quick Quote
Quick Reply:
HTML is disabled
UBBCode is enabled




Moderator:  MagicCity, P*Q, Truffle Royale