I need some help in clarifying a Reg B issue. Section 205.6 states a creditor shall not discount or exclude from consideration the income of an applicant or the spouse of an applicant because of a prohibited basis. Say for instance an applicant applied for a loan individually listing their wages and also as other income the income of their spouse. Must we consider in the credit underwriting the income of the spouse or can we choose to not include it because the spouse is not contractually liable for the loan. Thanks for the input…

We do not include the income of a spouse unless they will be contractually liable for the loan.

That is where the "Joint Intent" disclosure comes into place. If the spouse has not elected to be a party to the loan (Joint Applicant), then yes you can exclude that income from consideration in your underwriting because the income belongs to a non-liable party. Make sure you explain this to the applicant due to a possible adverse action requirement (Denial or Counter-Offer) if she doesn't qualify alone based on her own income.

It also depends on whether you are in a community property state or not. In a community property state, one spouse can pledge the income of both spouses and apply individually.

So basically, if the applicant list the spouse's income on the application, it is the bank's decision to include the spouse's income or not. But wouldn't the bank need to take the extra step used in 202.5(c) - a creditor may request any information concerning an applicant's spouse that may be requested about the applicant if the applicant is relying on the spouse's income as a basis for repayment of the credit requested. Or is it up to the bank to use the word 'may' as a choice to consider it as long as it is applied consistently to all applicants.

You are correct - it would be the bank's choice.