I guess I am looking for clarification on appropriate reasons for denial. With the hectic pace of wrapping year end issues, I am second guessing the validity of my reasoning. If the bank would have someone who has a deposit account with the bank and that particular account relationship is not in good standing due to problems collecting on bad checks and overdrawn balances etc. Is "unsatisfactory deposit account relationship" a sufficient reason for adverse action? Since the customer is in the position of owing the bank money, I view this as a credit situation. Right or Wrong??

I would think it would depend on why you are sending the adverse action notice, has this customer applied for a loan and based on the deposit relationship you are going to deny the loan? Or are you closing the account because of overdrafts that have not been paid? If this is the case you can close without notice due to fraudulant use of the account, customer not complying with deposit rules, without prior notice, becareful about closing if the customer has government deposits coming into the account, you may have to give notice in this case, although I do not believe you must if it is due to fraudulant use of the account. I am not a lender so I am not sure about the loan situation?

Jackie, you need to tell it like it is! The lender should determine the reasons for adverse action before taking it, not the other way around. Most likely your lender saw weaknesses in the applicant's credit report and the internal experiences added to the fear that the requested credit would not be handled as agreed. Without exceeding the Fed's limit of 4 reasons, cover all the major behavioral or financial improvements that the applicant would have to accomplish in order to put a big smile on your lender's face--these will be the disclosable reasons!

Thanks for the input. The individual applied for a loan and was turned down due the deposit account relationship with the bank. I looked at the credit and DTI and did not see any problems with those items. First of all, is it possible to use the deposit account relationship as a reason for denying a loan application if there were no other reasons for denial? I am very uncomfortable with that being the only reason stated on the adverse action notice.

If that's the reason, then that's the reason. AA notices are intended to be instructional--helping the uncreditworthy find the path back to creditworthiness. If this customer would qualify for the requested credit by simply cleaning up his/her deposit account act, then that's a perfect AA notice.

Jackie--
Think about this from the lender's perspective. Would lending to someone with a poor deposit account record at your bank give you warm fuzzy feelings about the potential for repayment?

Is the credit report full of good credit history, or is it just devoid of negatives?

If the applicant has no credit history and a poor deposit account record, that could be enough in the mind of a conservative lender to deny an application.

On the other hand, if there is something else lurking in the lender's gray matter that resulted in the turndown, perhaps the AA notice needs some work.

Happy holidays!

Thanks for all the input. I hope everyone has a safe and great holiday.