Adverse action w/co-applicant- ECOA denial reasons

Posted By: M&M

Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 08:35 PM

On a joint application, where both applicants have bad credit, our underwriting system lists the ECOA denial reasons for both applicants on each applicant's turndown notice. It's been my understanding (and we have materials from a BOL Adverse Action webinar) that state the notice for applicant A should include ECOA denial reasons both applicants, while the notice for applicant B should only include the ECOA denial reasons for applicant B.

Our compliance auditors have never said anything about this- when I asked them, they said it was a gray area. When I asked our underwriting system vendor, they told us they have a different interpretation of the rule.

Is there anything out there that clarifies this for me? I read the Consumer Compliance Outlook on ECOA vs FCRA, and that did not help me. Hoping someone can help point me to where I can find this to determine which is correct. TIA!
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 08:36 PM

Sorry- meant for this to be in the Lending Forum, not the Fair Lending forum!
Posted By: Dan Persfull

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 08:44 PM

Actually it is covered under Reg. B.

You must inform the applicant the reason or reasons they were denied. Reg. B only requires you to notify the primary applicant where one is known. The primary applicant would be told all reasons for denial including the co-applicant's bankruptcy if it played a factor in the AA.

If you choose to also notify the co-applicant of the AA then you must also tell them why they were denied including the applicant's repossession if it played a factor in the AA.

Search "specific reasons" in 1002.9. -

(i) A statement of specific reasons for the action taken; or
Posted By: rlcarey

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 08:44 PM

If you are sending an AAN to A, why are you sending a AAN to B? The loan was denied for a specific set of reasons. Those reasons do not change based on the applicant.
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 09:01 PM

From the 2011 FTC Staff Interpretations:
Multiple applicants.
When there are two applicants, a creditor must provide an adverse action notice to both applicants if the application is denied, even in part, based on information in a co-applicant’s consumer report.
Posted By: Dan Persfull

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 09:13 PM

The FCRA does require an AAN be sent to each consumer whose consumer report was used in the AA, but the FCRA disclosure is a separate disclosure (even though the Reg B & FCRA disclosures are often combined). Reg B only requires you to provide the specific denial reasons to the primary applicant.

(f) Multiple applicants. When an application involves more than one applicant, notification need only be given to one of them but must be given to the primary applicant where one is readily apparent.
Posted By: rlcarey

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 09:14 PM

You are quoting the FCRA requirements and its separate adverse action requirements. You have no obligation to give both applicants the reasons for denial under Regulation B.

1002.9(f) Multiple applicants. When an application involves more than one applicant, notification need only be given to one of them but must be given to the primary applicant where one is readily apparent.
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 10:15 PM

Below is from the AAN webinar we took- so what am I missing?

Primary Applicant A and Co-applicant B are denied credit. Applicant A and Applicant B live at the same address and have exactly the same poor credit history, which led to the denial (typical husband/wife scenario).
a. Applicant A:
ECOA Denial Reasons (pertaining to both Applicant A and B), FCRA Statement and FCRA Credit Score Information (If a score was used)
b. Applicant B:
ECOA Denial Reasons (pertaining to Applicant B only), FCRA Statement and FCRA Credit Score Information (If a score was used)
Posted By: Dan Persfull

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/07/20 11:00 PM

Applicant B is an applicant and Reg B requires you to disclose the specific reason(s) their credit request was denied. If you choose to provide the co-applicant with an AAN then you must inform them the reason(s) they were denied and that includes the applicant's derogatory information used in the AA.

1002.2

(e) Applicant means any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. For purposes of §1002.7(d), the term includes guarantors, sureties, endorsers, and similar parties.

(x) Person means a natural person, corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association.
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/10/20 01:37 PM

Thanks Dan. The issue I'm having is that our underwriting system populates the AAN with the reasons of both applicants on each AAN- so the primary applicant gets all reasons listed, as does the co-applicant, even if they are reasons belonging to the primary applicant only. Is that ok?
Posted By: Dan Persfull

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/10/20 01:45 PM

our underwriting system populates the AAN with the reasons of both applicants on each AAN- so the primary applicant gets all reasons listed, as does the co-applicant, even if they are reasons belonging to the primary applicant only.

That's the way it should be.
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/10/20 01:52 PM

So in this example from the materials that we have from a webinar on AAN, it is incorrect in what it states for Applicant B?

Primary Applicant A and Co-applicant B are denied credit. Applicant A and Applicant B live at the same address and have exactly the same poor credit history, which led to the denial (typical husband/wife scenario).
a. Applicant A:
ECOA Denial Reasons (pertaining to both Applicant A and B), FCRA Statement and FCRA Credit Score Information (If a score was used)
b. Applicant B:
ECOA Denial Reasons (pertaining to Applicant B only), FCRA Statement and FCRA Credit Score Information (If a score was used)
Posted By: Dan Persfull

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/10/20 02:07 PM

All adverse reasons the applicant or co-applicant was denied must be disclosed to each applicant that is provided an AAN.

If I as applicant A have decent credit but you turn the loan down due to applicant's B's repossession then you will put repossession as a denial reason on both AANs if 2 are issued.

If I have a repossession and applicant B has decent credit but you turn down the request due to my repossession then you must advise applicant B they are being denied credit due to my repossession if you opt to provide applicant B an AAN.

This does not hold true for disclosing credit scores. Only Applicant A gets Applicant A's credit score and only Applicant B gets Applicant B's credit score.
Posted By: M&M

Re: Adverse action w/co-applicant- ECOA denial reasons - 02/10/20 02:12 PM

Thanks Dan. Appreciate you taking the time to explain.