Customer came in and asked about refinancing his home loan and adding on money to catch up on bills. This was discussed with a loan committee the same day, and telephone call made to customer to advise that we could not advance any additional funds. No written application was taken. Do we need to send out a denial notice?

I think you need one, but I'm sure someone will correct me if I'm wrong!

It sounds as though you had enough information to make a credit decision. This means you had an application for Reg. B purposes, written or not. An adverse action is warranted.

In many cases it depends on how you answer a question: "Our loan policy doesn't allow for debt consolidation loans" as one response would not depend on the persons qualifications. That wouldn't be a denial. It is a product you do not offer. But "We don't want to make this consolidation loan to Andy" is a different response and is indicative of a decision based on the individual qualifications.

IMHO if the customer provided the lender with enough information to make a loan decision, and the lender decided not to make the loan, then an adverse action is required.

I think if you had enough to take to loan committee, you probably had enough to qualify as an application, and need to send an AAN.

It really doesn't matter if you had enough information to make a decision or not. The fact remains you denied the inquiry, request, pre-qualification, application - whatever you want to call it in this case based on the evaluation of the information you did have. Also Reg. B does not require a written application except for certain transactions involving the applicant's primary residence and your scenario does not meet one of those transactions (there was additional money requested for consolidation) which is the purchase or refinancing of the applicant's primary residence and the loan will be secured by the primary residence.

An AAN notice is required under 202.9 Look to the OSC for 202.9(5).

Suppose a consumer sits down at the lender's desk and the first words out of his mouth are, "I have a bankruptcy on my credit records. Before I go to the trouble to apply and before you obtain my credit report, what are the chances of you approving a loan for me?" In this case, our loan policy prohibits lending to individuals for which bankruptcy appears on the credit report. Do we have to give a AAN?

If you say "We can't do the loan because of your bankruptcy" I would say yes. You have made a decision on the consumer's credit worthiness. The policy is for sound business practice for your bank, not a product or service you just don't offer. A "bankruptcy? no loan" policy is underwriting criteria, therefore, a basis to make a decision.

5. Prequalification requests. Whether a creditor must provide a notice of action taken for a prequalification request depends on the creditor's response to the request, as discussed in comment 2(f)-3. For instance, a creditor may treat the request as an inquiry if the creditor evaluates specific information about the consumer and tells the consumer the loan amount, rate, and other terms of credit the consumer could qualify for under various loan programs, explaining the process the consumer must follow to submit a mortgage application and the information the creditor will analyze in reaching a credit decision. On the other hand, a creditor has treated a request as an application, and is subject to the adverse action notice requirements of §202.9 if, after evaluating information, the creditor decides that it will not approve the request and communicates that decision to the consumer. For example, if the creditor tells the consumer that it would not approve an application for a mortgage because of a bankruptcy in the consumer's record, the creditor has denied an application for credit.

IMHO yes. You offer the type of credit requested, you just don't offer it under the terms being applied for, which is to grant the credit to a bankrupt. You are telling this person you will not make them a loan based on their bankruptcy. Another thing to look at is have you ever made an exception to this rule?

Paragraph 2(c)(2)(v)
1. Terms of credit versus type of credit offered. Terms of credit versus type of credit offered. When an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of downpayment), a denial of the application for that reason is adverse action (unless the creditor makes a counteroffer that is accepted by the applicant) and the applicant is entitled to notification under §202.9.

Thanx guys, that's what I thought. The customer in question said that he did not want to complete an application and did not want a "hit" on his credit report as the result of an inquiry. He just wanted the question answered. I suppose the lender could've put his fingers in his ears and chanted "la la la la la."

Would your opinion change if instead of confessing "I have a bankruptcy on my credit....would you make me a loan?" the person said, "hypothetically speaking, would your bank ever lend money to a person who has a bankruptcy on his credit report?" I know.....I'm splitting hairs.

If I came in and said "hypothetically do you lend to people with a bankruptcy" you don't have an application. I would consider this a general question about how the bank operates. I haven't given you any information about me or my creditworthiness (I didn't say that I had a bankruptcy), therefore you could not make a credit decision on whether or not to grant me a loan. I have simply asked a question about what the bank is looking for, if that makes any sense. This is just my opinion though.