Should My Loan Officer Have Sent an Adverse Action Notice?

By Leslie Callaway, CRCM, CAFP; Mark Kruhm, CRCM, CAFP; and Rhonda Castaneda, CRCM

QWe received a complaint from the mother of one of our customers. She said her daughter came in to apply for a loan secured by a car that had been wrecked. The purpose of the loan was to repair the car so that it could be titled. The loan officer told her that the bank did not make auto loans secured by cars without a title. The loan officer suggested either a personal loan or home equity line, but the customer declined to apply. The loan officer did not provide an adverse action notice. Should he have sent a declination for the car loan even if the bank does not accept the collateral offered?

AIt appears that the loan officer should have provided an adverse action notice.

First, Comment 1 to §1002.2(c)(2)(v) of Regulation B (Equal Credit Opportunity Act) provides that notice is required “[w]hen an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of down payment.” (emphasis added) This contrasts with §1002.2(c)(2)(v) which provides that a “refusal to extend credit because the creditor does not offer the type of credit or credit plan requested” (emphasis added) is not an adverse action. In this case, it appears the bank offered the type of credit requested, but not the term requested related to collateral.

Second, when the loan officer declined the request, he had an application. See the Comment 3 to §1002.2(f) of Regulation B:

When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under §1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.

That being said, if the consumer applied orally and the bank only accepts written applications, it would not have to provide an adverse action as explained in Comment 2 to §2002.2(f). (Response provided July 2018.)

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QMy institution consists of two separately chartered banks under one bank holding company. Each bank can accept and process deposits for customers of the other bank. If a customer from one bank goes to the other bank and makes a deposit that necessitates a Regulation CC exception hold, must the hold notice state the name of the bank that holds the account?

ANo. Nothing in Regulation CC states that the name of the depository institution or the account-holding institution must be on the hold notice. Even the model form does not have a place for the bank name. As long as the account is properly identified, the Regulation CC requirements are met. See §229.13(g) which provides:

(1) In general. Subject to paragraphs (g)(2) and (g)(3) of this section, when a depositary bank extends the time when funds will be available for withdrawal based on the application of an exception contained in paragraphs (b) through (f) of this section, it must provide the depositor with a written notice.
(i) The notice shall include the following information–
(A) A number or code, which need not exceed four digits, that identifies the customer’s account.
(B) The date of the deposit;
(C) The amount of the deposit that is being delayed;
(D) The reason the exception was invoked; and
(E) The time period within which the funds will be available for withdrawal.

(Response provided July 2018.)

Answers are provided by Leslie Callaway, CRCM, CAFP, director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, compliance analyst, ABA Center for Regulatory Compliance. Answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of the response date shown at the end of each item.