Adverse Action

Posted By: ComplianceNewby

Adverse Action - 09/08/21 08:54 PM

How do you handle an Adverse Action when the borrower qualifies but the co borrower does not? Just send an adverse action to the co borrower?
Posted By: Rocky P

Re: Adverse Action - 09/09/21 12:01 PM

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.

1002.9 (f) you owe the primary, can send a copy to the coborrower.
Posted By: Third Trip

Re: Adverse Action - 09/09/21 12:54 PM

Don't forget that if you decided to take adverse action based upon information contained in a consumer report, each applicant is due an adverse action notice as required under the Fair Credit Reporting Act.
Posted By: raitchjay

Re: Adverse Action - 09/09/21 04:42 PM

Compliance Newby...i took your post to mean that you originated a loan to the applicant but denied the that correct or no?

Because if so...maybe i need to check out the notice requirements in Reg. B again, but i certainly don't send AANs to people who we originate a loan with.
Posted By: raitchjay

Re: Adverse Action - 09/09/21 04:54 PM

I'll add as an aside...i've never really understood the concept when 1 great borrower and 1 lousy borrower apply and you deny the lousy borrower and make the great borrower a loan......if the loan goes south, isn't it preferable to have 2 people to go after rather than 1...and either way, you have the great borrower? Just asking because i've never been a loan officer, and maybe i'll learn something.
Posted By: rlcarey

Re: Adverse Action - 09/09/21 06:32 PM

Raitchjay - I am with you.

If I need to kill a pig to eat, I would rather have two to chase rather than just one, even if one is skinny.

For the life of me this has never made a lick of sense to me. And I highly doubt that such action can be supported statistically and that it purely comes from false perceptions from the by-gone days,.
Posted By: raitchjay

Re: Adverse Action - 09/09/21 07:02 PM

Ha! I'm going to have to remember that skinny pig line...i like it.
Posted By: Rocky P

Re: Adverse Action - 09/09/21 10:12 PM

I agree, but want to throw in one more thought.
From a fair lending standpoint, the bank may be making a loan to someone who is less qualified than another who was denied. What would be needed would be for the lender to document the file that the credit was made solely considering the primary applicant, and that the coapplicant was not considered in the approval, nor were their assets or income a determining factor. If a control group applicant was approved with a (e.g.) 640 credit score, but a minority applicant was denied for credit with a 650 score, there would questions, unless appropriately documented before an examiner looks at the file.
Posted By: Rocky P

Re: Adverse Action - 09/10/21 02:14 AM

Couldn’t edit, but the loan policy should provide guidance, again as a benchmark to ensure uniformity and mitigate fair lending risk.

To what extent will examiners challenge? During a comparative file review from he’ll, (1,756 files), they were testing bankruptcy. There were 2 HIP loans flagged as a “matched pair “. Policy said no loans to bankrupt within 3 years. A Black male was denied for a $10k HIP loan, while a White male was approved for a similar amount. Both had bankruptcy within the 3 year period.

Differences? Black applicant was renting, while White applicant secured the HIP with a $30k certificate of deposit. Fortunately, policy also indicated that loans amply and entirely secured by negotiable collateral under the banks control could be made with a SVP’s approval. Had that not been in policy, the EIC indicated that despite the collateral issue, they would have cited the bank for differences in treatment. Whether or not it stuck would be a different story though.
Posted By: JacksTigger

Re: Adverse Action - 11/19/21 07:15 PM

I want to bring this up again,

Questioning if an adverse action notice is needed

Definition of Adverse Action in ECOA. 1002.25(c)(1)(i)
(c) Adverse action. (1) The term means:
(i) A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;

joint loan application, one great borrower (Jane) one not so great (Jack) . Bank says can't do loan in both names, but could do loan with just Jane.--wouldn't this be a counteroffer. And if the loan closes in Jane's name, isn't that accepting the credit offered and therefore no notice is needed to Jack??

I have read through this so many times that I'm confusing myself, and it's Friday of a long week

Posted By: rlcarey

Re: Adverse Action - 11/20/21 08:41 AM

Plain and simple - Jack was denied credit - you owe at least Jack an AAN.
Posted By: JacksTigger

Re: Adverse Action - 11/23/21 05:28 PM

thank you
Posted By: Andy_Z

Re: Adverse Action - 11/24/21 09:10 PM

Jacks Tigger - your cite confused me until I removed the "5".

Consider the intent of an AAN under B and the FCRA. By telling the applicant there is something wrong it draws attention to it and if there was an error, it's correctible. Say I have $2,000 in credit card debt, but I mis-type that I have $25,000 in credit card debt. You telling me my debts or DTI is excessive may be resolved because of the 2-way communication. The AAN is a tool to facilitate this as much as it is to notify the applicant of your decision.

As to the comments above on denying a request because A was qualified and B was not - I am with you guys. Plain dumb in many cases. Rocky's point is well made, but also consider that if A gets a loan and B was removed/denied, if the bank needs to contact A for whatever reason, now they can't also ask B about it and must talk around the whole deal because of collection and privacy laws. And realistically when finances are comingled the lender is only worse off. Not all partners do this, but I couldn't imagine not sharing my accounts with my wife. Still there have been times she calls a credit card company for some reason and with no verification of ID, I yell, "yes, you can talk to my wife about my account" and the world seems right again - financially.