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#385664 - 07/13/05 09:47 PM
FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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I am looking at a BOL Tool that a copied some time ago. It is called "Regulation B - ECOA and FCRA Adverse Action Notice Cheat Sheet." Under one of the sections, I find the following:
"Recent interpretations/changes in Reg. B clarified that there is no violation of privacy to simply send one copy to each applicant disclosing the denial reason relating to one applicant's poor credit history."
Where can I read about these "recent interpretations/changes to Reg B?"
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#385665 - 07/13/05 10:43 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Dec 2002
Posts: 4,615
SC
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I think the changes referred to on that tool were the ones effective April, 2004. Here's a thread where they were discussed. Click Me
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#385666 - 07/19/05 09:43 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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I have been busy, so now I need to bump this one back to the top. I did not find an answer in the thread for which the link was provided. Maybe some imput could be offered if I were to get to the root of my question.
For example....an applicant applies for a loan and is denied based on his or her credit report. The applicant returns with a co-signer/guarantor. The co-signer/guarantor also has a lousy credit report. Here is what we currently do.
1. Send an AAN to the applicant outlining the reasons for denial based on the applicant and or the applicant's collateral. Then, for "other," we indicate that the co-signer/guarantor did not meet the bank's standards.
2. We send the cosigner/guarantor and AAN based on cosigner or guarantor's bad credit.
Our software company insists that identical notices should be sent to applicant and cosigner/guarantor, listing all pertinent reasons.
I do not see how this can be useful. For example, suppose the applicant is denied based on limited credit experience, poor credit performance with us and value or type of collateral insufficient. The co-signer is denied based upon delinquint obligations with others, foreclosure and excessive obligations in relation to income. Well...there's six reasons....not supposed to list more than four, according to the commentary. And how is the applicant and the cosigner/guarantor supposed to know which applies to who? It seems prudent to send separate notices.
Please provide input. Thank you very much.
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The more you sweat in training, the less you bleed in battle.......
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#385667 - 07/20/05 04:19 PM
Re: FCRA & ECOA Notices - Adverse Action
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Diamond Poster
Joined: Feb 2003
Posts: 2,362
Colorado
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Swiggles,
This is from the preamble to the final rule published 3/18/03:
9(b) Form of ECOA Notice and Statement of Specific Reasons
9(b)(2) Statement of Specific Reasons
Section 202.9(b)(2), adopted as proposed, clarifies that whether a creditor’s denial of credit is based on the creditworthiness of the applicant, a joint applicant, or guarantor, the reasons for adverse action must be specific. For example, a general statement that ‘‘the guarantor did not meet the creditor’s standards of creditworthiness’’ is insufficient.
The legislative history of the requirement to provide specific reasons for adverse action indicates that the purposes of the disclosure are to help achieve the anti-discrimination goals of the ECOA and to educate and inform consumers. These dual purposes are served by the clarification in § 202.9(b)(2). For example, the disclosure may discourage a creditor from discriminating based on a coapplicant’s or guarantor’s race, sex, age, or other prohibited basis. Also, the disclosure may help educate and inform applicants, co-applicants, or guarantors as to reasons for denial that are not
apparent from looking at their credit report.
Many commenters were concerned about the co-applicant’s or guarantor’s privacy when the reasons for adverse action pertaining to creditworthiness are given to the primary applicant. When a person agrees to be a co-applicant, guarantor, or similar party, however, there is (or should be) a general understanding that information will be shared. Accordingly, the rule has been adopted as proposed.
Here’s what actually changed - the bolded section was added:
2) Statement of specific reasons. The statement of reasons for adverse action required by paragraph (a)(2)(i) of this section must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the creditor’s internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor’s credit scoring system are insufficient .
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#385668 - 07/20/05 04:33 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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So you are saying just to spit out all the reasons for denial, both applicant and guarantor, on the same form and leave them to their own devices to figure out what's what? And the regulators want disclosures to be clear and meaningful? Sheesh!
And thus you would include the FCRA notice and credit bureau information to both even though the denial of one party might not have anything to do with information on a credit report?
I am definitely confused because this issue defies reason. Am I understanding your answer correctly?
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The more you sweat in training, the less you bleed in battle.......
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#385669 - 07/20/05 04:50 PM
Re: FCRA & ECOA Notices - Adverse Action
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Platinum Poster
Joined: Apr 2004
Posts: 595
OZ
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Also, don't forget under Reg B you only need to give the notice to the primary applicant. Under FCRA, you don't need to give any notice to a guarantor. See the Stinneford FTC staff opinion letter: http://www.ftc.gov/os/statutes/fcra/stinneford.htm
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#385670 - 07/20/05 04:52 PM
Re: FCRA & ECOA Notices - Adverse Action
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Platinum Poster
Joined: Apr 2004
Posts: 595
OZ
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I should have said you don't need to give the FCRA "Adverse Action" notice to a guarantor. Without checking each provision, I'm not sure about the rest of the disclosures that are now required because of FACTA.
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#385671 - 07/20/05 06:26 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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It's me again...disgruntled compliance officer....same subject. I'm not trying to beat a dead horse but....how would you answer the below question regarding this scenario:
Applicant applies and is denied. Bank gives applicant written combined ECOA/FCRA notice giving reasons for adverse action and also issues a counteroffer requesting a guarantor. Applicant comes back to the bank, guarantor in tow. Bank checks guarantor's credit. It stinks.
Now, what information goes on the adverse action form given to the applicant? Our software allows us to indicate that the guarantor is not acceptable, or that the guarantor does not bank with us (a loan policy requirement). This is not allowed?
According to the FTC letter, the guarantor would only receive the FCRA notice.
Thanks to all who are trying to help me with this.
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#385672 - 07/20/05 06:44 PM
Re: FCRA & ECOA Notices - Adverse Action
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Anonymous
Unregistered
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I would send an AAN to the primary applicant again stating why they don't qualify as well as the reasons the co-signer didn't qualify. We added check boxes beside the denial reasons as well as the FCRA notice to indicate whether it applied to "applicant", "co-applicant" or "co-signer". I would then send an AAN to the co-signer (in order to provide the FCRA notice) and only indicate the reasons they (the co-signer) didn't qualify.
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#385674 - 07/20/05 08:45 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Feb 2005
Posts: 6,559
Foxboro
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Swiggles-do you have a section for "other" that maybe you could note which reasons apply to which borrower?
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#385675 - 07/21/05 07:46 PM
Re: FCRA & ECOA Notices - Adverse Action
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Diamond Poster
Joined: Feb 2003
Posts: 2,362
Colorado
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Swiggles,
I believe 202.9(2) requires you to tell your applicant the reason the other party did not qualify. You cannot just say that they did not qualify. So your example of saying "guarantor does not meet our credit standards" is not sufficient.
I understand your frustration, but I'm sure this isn't the first time you've had to choose form over substance in order to meet the technical requirements of a regulation.
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#385676 - 07/21/05 08:26 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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OK, then...back to my original post where I mentioned looking at a BOL Tool dated 05/03....it's still out there if you want look too. It indicates that, where there are two applicants or a guarantor, that the preparer should check the "other" box and and indicate "Credit history of the co-applicant" or "Credit history of the Guarantor." So you are saying this is incorrect? Thank you for helping to get all this sorted out.
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#385677 - 07/21/05 08:46 PM
Re: FCRA & ECOA Notices - Adverse Action
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Diamond Poster
Joined: Feb 2003
Posts: 2,362
Colorado
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No, I think that statement is accurate. Saying "credit history of the co-applicant" or "credit history of the guarantor" is a specific reason, IMO, while saying "guarantor does not meet bank's standards" is not.
You have to tell the primary applicant the specific reason the co-applicant (or guarantor) did not qualify.
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#385678 - 07/21/05 08:58 PM
Re: FCRA & ECOA Notices - Adverse Action
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Anonymous
Unregistered
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OK.....I think that will work. I have found that I'm really dense on this subject!!....but did not realize it until we changed software companies.
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#385680 - 07/21/05 09:06 PM
Re: FCRA & ECOA Notices - Adverse Action
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100 Club
Joined: Apr 2004
Posts: 161
The hat rack
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We do not issue counteroffers where we have to review additional credit criteria. We were told that this is unacceptable practice to counteroffer to require a co-signer and then find out that we cannot offer the loan since the co-signer, guarantor or other party did not strengthen the risk.
Last edited by sansan; 07/21/05 09:07 PM.
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#385682 - 07/22/05 12:48 AM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Jun 2001
Posts: 8,272
Where the heart is
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Quote:
So you are saying just to spit out all the reasons for denial, both applicant and guarantor, on the same form and leave them to their own devices to figure out what's what? And the regulators want disclosures to be clear and meaningful? Sheesh!
And thus you would include the FCRA notice and credit bureau information to both even though the denial of one party might not have anything to do with information on a credit report?
I am definitely confused because this issue defies reason. Am I understanding your answer correctly?
That's the answer as I understand it. I know some banks have taken the extra step of identifing each applicant by initials or a number (#1, #2, etc.) and indicating the intial or number next to each decline reason as a way for folks to sort it out.
Blessedly, the regulation does not go that far ....(yet!)
IMHO - When people apply for the same credit, they have a right to know how lousy the credit is of the person for whom they would have become obligated.
It has also been my experience that people with bad credit (unless they are a victim of ID Theft) KNOW that they have bad credit. In addition, the FCRA notice gives them the right to obtain a free copy of their credit report, and if they weren't able to figure out what was wrong before, they should be able to after reviewing their report.
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#385683 - 07/22/05 01:50 PM
Re: FCRA & ECOA Notices - Adverse Action
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Power Poster
Joined: Aug 2001
Posts: 7,351
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Thank you for your comments. Quote:
That's the answer as I understand it. I know some banks have taken the extra step of identifing each applicant by initials or a number (#1, #2, etc.) and indicating the intial or number next to each decline reason as a way for folks to sort it out.
We are simply too big to go to that extreme....having forms tinkered with by hand. And if it's not required, you won't find software that will do it. I guess we'll just carry on.....
Quote:
Blessedly, the regulation does not go that far ....(yet!)
And when it does, the software vendors will jump on board...and charge more for the extra work!
Quote:
It has also been my experience that people with bad credit (unless they are a victim of ID Theft) KNOW that they have bad credit. In addition, the FCRA notice gives them the right to obtain a free copy of their credit report, and if they weren't able to figure out what was wrong before, they should be able to after reviewing their report.
Yep...we have a current situation where we declined someone who had every type of bad credit known to man on the credit report. Yet, the person thinks we've disciminated and cannot understand why we would not make the loan. It's crazy.
Thanks to all. This has been a simply maaaavelous discussion.
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