#2284934 - 05/24/23 06:37 PM
Re: Potential ECOA/Reg B violation
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Joined: Jan 2017
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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.
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#2284943 - 05/24/23 07:50 PM
Re: Potential ECOA/Reg B violation
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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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.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2285006 - 05/26/23 01:26 PM
Re: Potential ECOA/Reg B violation
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Power Poster
Joined: Jun 2003
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Florida
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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.
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