In reviewing our bank's contract with a new mortgage broker, I noticed that in the contract it states that it is the mortgage broker's responsibility to provide adverse action notices to declined applicants. Even though the broker orders the credit reports, appraisal,documentation, etc. and submits the complete loan package to the bank, the actual credit decision is made by the bank. Reg. B and FCRA appear to indicate that the creditor must notify the applicant of any adverse action. Should we/ can we allow the broker to do this?

The broker may be shopping the package to several lenders. If anyone approves the deal, there is an exception [§202.9(g)] that allows that the others do not have to give notice.

Thanks, Al. However, aren't we safer sending the notice ourselves? I know that we currently receive Mobile Home loan applications through a vendor who sends them everyplace! We still provide adverse action notices to the applicant; we do not rely on the third party or another lender to do that for us.

Al is right that you are not obligated to send a notice if the applicant gets the loan from another creditor. However, you have to take steps to know this. This means that in addition to your agreement with the broker, you should take some steps to follow up and determine whether they are actually carrying out their end of the bargain. Because of this responsibility, most creditors send the notices anyway. You could always send the notice to the broker for delivery to the applicant if needed.