What should we list as the reason for denial on an adverse action when we would have approved the loan except for the fact that we couldn't demonstrate a net tangible benefit to the customer? Thanks.

What was the purpose of the loan?

We only apply the net tangible benefit test to refinances on residential mortgages.

Interesting question. Are you saying that if the loan was originated, the creditor would be in violation of a state law / statute? My inclination is to deny it for the reason that credit cannot be offered for the terms requested with a further reason referencing the net tangible benefit test. You may want to have a second review to ensure the results are accurate.

Some states have a specific requirement, but many are vague if they have one at all. Also the federal anti-predatory guidelines are very vague too. So we set a standard that should pass in any state, but a loan that fails our standard wouldn't necessarily violate any law if we grant it.

Does everyone think we could still cite that we don't offer credit for the terms requested and cite our net tangible benefit standard as the specific term?

I think you should say "unable to grant credit under terms requested due to it resulting in a violation of State law".

What about in cases where the state doesn't have a net tangible benefit law, or when our standard is stricter than the law of that particlar state? (We designed an internal standard that will pass in all of our states so we could have single standard rather than jungle different standards for each.)

I would think that if when you have underwritten the loan, and you cannot grant the loan based on the original terms and conditions they requested, then your declination should state such. Is the refinance going to lower their payments, better interest rate?

Reg B also states that the customer can be told orally or may request in writing specific reasons for the denial. Your initial notice will state the principal reason for the denial. I think if the Loan Officer, when talking to them explaines why you are unable to grant the loan they'll understand, may not fully appreciate it upfront but will in the long run.

Alternative to providing specific reasons. In lieu of providing a statement of specific reasons, the creditor may disclose in the adverse action notice the applicant’s right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor’s notification. The disclosure must include the name, address and telephone number of the persons or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor must also disclose the applicant’s right to have them confirmed in writing within 30 days of receiving a written request for confirmation from the applicant.