Requiring spousal signatures

Help! I'm in a debate with a commercial lender who says the ECOA does not apply to him. (LOL) Seriously, he believes he can make spousal guarantees a condition of doing commercial loans, regardless of the ownership status of the collateral. I say the ECOA applies to any credit transaction, consumer and business. I'm a new Compliance Officer, he's an x OCC examiner, thus everyone believes him. Thanks for your help!

OPINIONS EXPRESSED BY ME IN THIS FORUM ARE ONLY MY OPINIONS, (OBVIOUSLY), NOT THOSE OF MY EMPLOYER!

Ask him why business loan requests get adverse action notices?

Certainly it applies. Look through the definitions in B as to whom it applies to.

You'll have issues on community property state or not and perhaps other state rules, but B applies.

As X OCC, was he compliance? Maybe we want him back if all the errors go our way.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Well the ex-OCC examiner must have forgotten to read…

OCC- An Examiners Guide to Consumer Compliance

OCC-GCC - Equal Credit Opportunity Act -- 12 CFR 202

OCC-GCC - Requirements and History

The Equal Credit Opportunity Act (ECOA) (15 U.S.C. 1691) became effective in 1975 and is implemented by the Federal Reserve's Regulation B ( 12 CFR 202).
Regulation B prohibits discrimination in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to enter into a binding contract), receipt of income from public assistance programs, and good faith exercise of any right under the Consumer Credit Protection Act. Those factors are referred to throughout the regulation as "prohibited bases." In addition, discrimination is unlawful if an application is declined because of the race, color, religion, national origin, sex, marital status or age of an applicant's business associates or of the persons who will be related to the extension of credit. e.g., those residing in the neighborhood where collateral is located. Illegal discrimination means treating an applicant or a group of applicants less favorably than another group because of a prohibited basis. Regulation B sets forth certain acts and practices which are specifically prohibited or permitted. To limit discrimination, it imposes a balance between the bank's need to know about a prospective borrower, and the borrower's right not to disclose information inapplicable to the transaction. The regulation deals with taking, evaluating, and acting on the application, and the furnishing and maintenance of credit information. It does not prevent a creditor from determining any information necessary to evaluate the creditworthiness of an applicant.

OCC-GCC - Business Credit

In general, credit extended for business, commercial or agricultural purposes, is subject to the requirements of the ECOA.

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Comments are mine and not those of my employer.

There was a thread or a posted article some time ago where this same topic was discussed - that is - "ECOA does not apply to commercial lending" and the thread included some really good information about how to train the commercial lenders to comply. It was really good. I copied it to use as a training tool however, I can't locate it. Does anyone remember this discussion? Anyway, ECOA is a fair lending reg and applies to commercial lending too. Obviously the ex-OCC lender was not a compliance examiner, or he'd know this, OR he obviously never read the OCC's Examiner's Guide to Consumer Compliance. Excellent guide. Try it. He'll love it. I've had this experience too...where everyone thinks that the lender who is the ex-examiner is the obvious expert. Can't tell you how many times I've proven them wrong.

Oh those commercial loan officers. They are always trying to exempt themselves from something! Wyogirl, I’ve been doing this comp thing for almost 15 years and I’ve yet to meet a commercial loan officer who admits that Reg. B applies to commercial loans.

For years on end, the commercial side of banking has ignored the signature rules of Reg. B. Their battle cry has always been - Take no prisoners – get all spousal signatures. Reason – the loan is easier to collect. I’ve even had local attorneys (with no knowledge of banking rules of course) say the same thing.

A few years ago, I decided to settle this matter with the CLO. I obtained a written counsel opinion on the matter, especially on signatures, tailored to my state. Rather than using our general counsel (local), I used counsel familiar with both banking and state law. For this issue, counsel needs to know both sets of law because in some states you apparently need to obtain a spousal signature on the debt instrument and the security instrument to go after the collateral.

Our counsel informed us that we only need to obtain the spouse signature on the security instrument to get access to collateral. Of course, counsel agreed that Reg. B applied to commercial loans.

By the way, do not let this ex-OCC examiner intimidate you. My previous employer hired an ex-OCC examiner to be the CLO. This person had never heard of Reg. O. Imagine that! Your ex-examiner may have been on the Safety & Soundness side and never worked with Reg. B before.

So document the lender’s reasoning for his belief, then show him a copy of the examiners manual and regulation. Stick to your guns Wyogirl!

Any opinion expressed above is personal, certainly not the opinion of my employer, and may be worth as much as it cost.

[This message has been edited by Doug (edited 11-07-2001).]

Thanks everybody, I appreciate your replies. I quoted to this officer "any credit transaction" from reg B and I asked him the questions that Andy suggested already. I decided, being from Wyoming and all, I would load my gun, get some extra ammo (you all) and then start a new round of shooting! Thanks again!

As I was reading through this thread, I was struck with two thoughts:
1. I didn' think Commercial Loan Officers believed ANY of the Regs applied to them, and
2. Maybe there is a GOOD REASON why this person is an "ex" OCC examiner!
Things that make you go "Hmmmmm"....
Leslie

[This message has been edited by Leslie (edited 11-08-2001).]

I'd be willing to bet dollars to doughnuts that the loan officer was an ex-"safety and soundness" examiner who never got involved in examining for regulatory compliance.

Your commercial loan officer is more than welcome to call the Credit Administrator of our bank to find out EXACTLY what can happen if you REQUIRE a spouse's guaranty on a business loan.

(Hint - it's NOT pretty!)

mizrahib@partnershipbanking.com

Do you know the difference between God and a commercial lender? God doesn't think he's a commercial lender...

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Skippy - CRCM

The prohibitions against spousal signatures definitely apply to commercial loans. Just tell your commercial lender that his next round of golf could be with the Dept. of Justice.

Dollars to Doughnuts . . . Bonnie, I've said that so many times never quite knowing why. Where does that phrase comes from?

Maybe some one can do better…

See this interesting site:

http://www.wordorigins.org/thelist.htm

Here is their definition -

Dollars to Doughnuts
I don't know the exact origin of this phrase, or even when it came into use. It, however, is clearly an allusion to odds in a bet--such a sure thing that the speaker is willing to wager real money against pastries. The terms were undoubtedly chosen for alliterative purposes.

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Comments are mine and not those of my employer.

Make mine Krispy Kremes!

Could it be that a doughnut shop might be a safe place to park your money - what with all the cops?

Then again, you wouldn't want your local law enforcement knowing that you were gambling!

Question - if you were gambling with doughnuts, and you used your VISA check card to purchase those doughnuts, have you just violated your agreement with VISA?

Can anyone tell it's Friday and my brain has gone on overload?

Yes.

But what if the donut shop is a cover for a hawala?

Actually, back to the Regulation B issue (and commercial lenders seem to be genetically predisposed to commit this particular violation) check the definition of applicant. This was revised specifically to entrap unwary commercial lenders (and safety and soundness examiners) who tried to pretend that the spouse whose signature was required wasn't and "applicant" and therefore wasn't protected by Reg B. The FRB fixed that!