A consumer applies for various loan every few months. Every request for credit is denied for a multitude of reasons-all legitimate and all documented. Sr Management is asking if we can deny him from applying for loans since the outcome is 'pretty well established'. I say No, you must allow him to apply and cannot discourage him from applying-one of these times, the reasons for previous denials may be resolved.
Agree or not?

If there is an application fee, then you could have a UDAAP issue by accepting the fee over and over again. You could also have a UDAAP issue if the applicant's credit score is affected by repeated inquiries if each application involves pulling the credit score. Otherwise, I would agree with you that you should not discourage an application.

Whoa! Wait a minute. The bank isn't telling the applicant to try again, and again, and again. In fact, they'd rather he didn't. They are denying this loser and trying not to violate Reg B by discouraging him. If an examiner brought up UDAAP (in either way you mentioned it), I'd have a tough time from laughing in their face or possibly even punching them.

Lilly: I agree with you.

Agreed with Lilly and David. A bank cannot tell a consumer not to apply for a loan (unless you are saying we don't offer that product). It is up to the consumer to apply even after being turned down. Now, if perhaps this person has a mental/comprehension issue, the bank might want to have a more in depth chat with the customer, explaining the reasons why they are not being approved and what would need to change in order to be approved. The person is not necessarily a loser, they could be but they may have a skewed view of reality due to issues beyond their control.

1002.4(b) and its Commentary addresses the prohibition of discouraging applicant's on a prohibited basis to apply for credit.

As long as you are not basing your decision on a prohibited basis you are free to tell the applicant you'd rather they take their business elsewhere. However, if this person applies on line, by mail or drops off an application you must act on that application regardless how many times they apply.

You also want to look at 1002.1(b) and it's Commentary. You don't want the following to trip you up.... or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act..... the reason I bring this up is the bankruptcy code is part of the Consumer Credit Protection Act. See the Bankruptcy Abuse Prevention and Consumer Protection Act.

Does the customer "understand' why they are being denied? It may fall under either of the following

= knowing what their rights are and intentionally being a pain in the derriere to the bank /or/

- not knowing what is happening and hoping one of the times they might get a loan.

If the latter, has a LO ever sat down with the customer and explained what might be needed to get a loan (using the AAN and explaining if these get corrected then the bank might lend then the money)? It could be as frustrating for the customer.

My "loser" comment was meant to be funny. It's obvious this bank thinks they are not worthy of a loan - hence the multiple denials. I didn't mean any offense.

Good advise from all. I noticed no one took up Mr. Belvedere's comment about UDAAP. Anyone agree, even in the slightest?

Anyone agree, even in the slightest?

Nope.

Me either. I honestly don't understand the UDAAP reference.

seriously? if you have an applicant with no job, you know they will not be approved and they apply repeatedly (maybe because of a mental incapacity or lack of financial awareness) and you charge this person a $300 application fee each and every time - none of you could envision this showing up on the CFPB complaint database as unfairly taking advantage of the customer? I am not saying don't take the app, but to be aware of UDAAP issues if you continue to take the fees and or pull credit.

Maybe my glass is less than half full.

I could see UDAAP if the bank did not establish reasonable intervals for certain "repeat fees" for repeat services.

For example, you might not want to charge for a new appraisal if the prior one was still valid (less than 6 months old).

I would also make sure my advertising was not encouraging people to apply for some very attractive loan rates withhout adding "subject to credit approval" Not required/Best practice.

Seriously and Really! I'm shocked that you think it would be a potential UDAAP issue. That's why I'm glad to see you reply because I'm not following your line of logic. In fact, I think it's pure paranoia.

Let's assume: We disclose we charge a fee. The person applies and is informed. We deny them and tell them why by giving an AAN. They can call and inquire if they'd like. They continue to apply. We disclose each time we charge them. We deliver an AAN each time they apply. Uhhh. How are WE treating them unfairly? Deceiving them? Abusing them? We'd like to tell them to go away, but Reg B requires we not discourage people, so we allow them to continue to apply. I can't stop them from being stupid and if I waive the application fee, it might end of being a fair lending issue.

Could it show up on the CFPB complaint database? Sure. So can anything illegitimate complaint.

Is pulling their credit report each time abusive? I don't think so, if it was needed to underwrite their request. Also, I ask you to find the facts about how much a credit score actually drops by repeat reports being pulled. That's largely a myth. Here's some information to help you understand this:
http://www.myfico.com/crediteducation/creditchecks/inquiries.aspx

Maybe this will help. Think about repeat overdrafts... The disclosures are there and the person opts in to willing pay the fees. Some banks have paid big fines for repeat overdrafts. How are repeat $35 overdraft fees that much different from repeat $300 application fees?

As an industry, I think the regulators are sometimes taking the position that banks need to protect customers from themselves. Think Liar Loans... (consumers participated willingly in that too), but the industry was held to account.

I am not arguing the credit score issue, I am just saying that any discretionary fees, especially when combined with any complaints and/or aggressive advertising can be asking for it.

How are repeat $35 overdraft fees that much different from repeat $300 application fees?

If you feel they are abusing their account privileges, you close the underlying deposit account and send them down the road.

You can't tell them that they cannot apply for credit.

You need to try another analogy.

Some banks have paid big fines for repeat overdrafts.

Really? Name one. They have paid fines for the failure to properly disclose their overdraft program, but I have yet to see a bank fined for continuing to charge a customer when there is a legal contract and it is properly disclosed.

especially when combined with any complaints and/or aggressive advertising can be asking for it.

We aren't talking a whole class of customers here. We are talking one person that might be considered as acting irrationally.

I would see UDAAP if the bank was soliciting or encouraging applications. I do think the bank should have a credit counseling chat with the applicant.

As you know, there are many banks that have paid fines for poorly run ODP programs. My point there was about setting some limits on repeated fees. The disclosure of a fee alone will not make it comply with UDAAP unless reasonable limits are in place, then monitored and enforced.

By the way, my other analogy was liar loans, which gets at the bank's responsibility to find ways to help protect some customers from themselves.

As for this one "isolated" case; some are speculating that the person may be "disabled", which may represent a protected class, especially if the person is receiving protected income.

KB, I agree with your points. Thanks for speaking up.

A minor clarification... I think the bank may want to steer away from the term "counseling", since the new Z rules seem to explicitly view counselors as advocates for the borrower vs. loan officers that are advocates for the bank.

I just think a referral to trained credit counselor might be better then letting a bank's MLO try and do it him/herself.

That was what i was thinking, explain the problem and refer the applicant to get help.

Thank you all for your input; great reading and insight.

To clarify some of the points raised:
We do not charge an application fee on any of our loan products.
This repeat borrower has had numerous'chats' with many of our lenders from Sr VP on down. This is an elderly retired banker that is clearly exhibiting capacity issues.
We had decided to continue on as we have been and just deal with him as we have been.
Again, I appreciate all the feedback.

One note on the mention of "liar loans," and a bank's responsibility to protect consumers from themselves. "Liar loans" were not problems only because consumers were fabricating assets or income in their applications. There was also a part of the mortgage industry that actively "looked the other way" when they saw such applications, along with a failure of the secondary market -- including the GSEs -- to combat that type of fraud through strict documentation and verification requirements.

ODP is a bad example to compare to application fees. In the past, ODP's didn't have guidance or regulations (although rules are coming). Reg B has absolute rules that tell us we cannot discourage people from applying.

UDAAP risk typical comes when there are no rules. We are perceived to be outside of the guidance or the "right thing to do". Reg B has rules about sending AAN and not discouraging people from applying. The original poster is following them.

Back to the credit score issue: When did the bank become the keeper/protector of the credit score? We use them WHEN we have a legitimate business need. If that makes your score go down, so be it. The bank doesn't write the rules for how credit scores are derived. Is it the bank's job to make your credit score as high as possible.