By Leslie Callaway, CRCM, CAFP
Q/ Are there any special exceptions regarding the error resolution requirements under §1005.11 of Regulation E (Electronic Fund Transfer Act) for an account that was closed for fraud while the claim was under investigation? Is provisional credit required?
A/ The regulation provides no exception for closed or blocked accounts: Under §1005.11, banks must provide provisional credit within business 10 days of a timely claim if they cannot resolve the dispute within that period. Customers must have full use of the funds during the investigation. The bank must also notify the customer that the account has been provisionally credited. (§1005.11(c)(2)(ii).)
One approach is to reopen the account, which, because the bank must give full use of the provisionally credited funds, presents risks, especially for an account that has been closed for fraud, as the customer is likely to withdraw the provisionally credited funds before the investigation is complete. In addition, you should check with your bank’s legal counsel about any contractual or other legal or issues in re-opening a closed account.
Another approach is to mail a check to the customer, but that is even riskier than re-opening the account in the event the claim is denied. The customer is unlikely to return the money.
In any event, if the claim is denied and the customer does not return the provisionally credited money, the bank could follow its usual reporting and collection procedures for delinquent deposit accounts. (Response provided December 2024.)
Q/ My bank offers a prequalification program — not a preapproval program — which under Regulation B (Equal Credit Opportunity Act) is similar to an inquiry and not considered an application for credit unless the bank denies the request. Thus, if the bank denies a request for a prequalification, the bank has denied an application for credit and must provide an adverse action notice. (Commentary at §1002.2(f)-3))
In addition, under §1002.13(a)(1), a “creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request as part of the application” the applicant’s ethnicity, race, sex, marital status and age.
If the bank has a denied prequalification, which is considered an application, must it obtain the demographic information from the applicant?
A/ No. A declined prequalification is only an application for adverse action purposes — not for demographic data purposes.
Comment 3 to §1002.2(f) states, “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” (emphasis added).
The argument is that if the regulation intended to treat denied pre-qualifications as “applications” under all provisions or any other specific provision, such as the collection of demographic information, it would have stated so and not called out one provision, the adverse action provision.
In addition, this conclusion makes sense because collecting customer demographics at the time of the prequalification request would be illegal, as there is no credit application, and collecting the data after declination would be impossible.
(Note that under the Home Mortgage Disclosure Act, denied pre-qualifications need not be reported. Only “formal” applications, like those submitted through a preapproval program, need be reported.) (Response provided December 2024.)
Answers are provided by ABA Regulatory Policy and Compliance team member Leslie T. Callaway, CRCM, CAFP, senior director, compliance outreach and development. Answers do not provide, nor are they substitutes for, professional legal services.
