My bank has contracted with a vendor to offer mortgage prequalifications to potential borrowers using a “soft pull” credit report.
The vendor has stated that because a prequalification is not a request or application for credit, the bank must obtain written permission for the soft pull, and the bank may inform customers verbally if they do not pre-qualify—written adverse action notice is not required.
My bank believes that denying a prequalification based on a credit report constitutes “adverse action,” which requires a written adverse action notice.
QIs the bank mistaken?
ANo, the bank is correct. If the prequalification is “approved,” the bank may provide verbal approval, but if the consumer is declined, a written adverse action notice is required as explained in the Official Staff Commentary to Regulation B § 1002.2(f). It addresses when a request or inquiry becomes an application and the bank’s responsibility when it does.
3. 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. (emphasis added.)
Reg B considers a denied prequalification request to be an “application” and a written adverse action notice is required.
For more information, contact ABA’s Leslie Callaway.
Please note that this section is not a substitute for professional legal advice.