Adverse Action ppt

Learning Point https://www.scotsmanguide.com/browse/content/when-is-an- application-really-an-application

Adverse Action A Regulatory Compliance Series Module

Objectives • Define “Adverse Action” • Explain when notice is required and who must receive the notice • Detail the notice timing requirements • Describe the required disclosures • Discuss incomplete or withdrawn applications

Adverse Action Defined

What’s in a Name? Adverse Action • Adverse Action • Credit Decline • Denial Letter • Notice of Action Taken • Letter of Credit Decline • Statement of Credit Denial

ECOA Application • Any oral or written request for credit that is made in accordance with procedures established by a creditor for the type of credit requested • The actual practices of a lender rather than its stated practices, if different, determines if there is an application under ECOA Underwriting University Training brought to you by Mortgage Mentor May 2010

What is Adverse Action? • The refusal to grant credit in substantially the amount or on substantially the terms requested in an application • A “counteroffer” by the lender that is not accepted by the applicant • A “counteroffer” ceases to be adverse action if the applicant accepts the counteroffer • A loan approval with a condition that the applicant cannot or will not meet, without which the loan cannot be made

What is Not Adverse Action? • A refusal to grant credit that is prohibited by applicable law • A refusal to extend a type of credit that the lender does not offer • An incomplete application that does not contain sufficient information to allow a lender to make a credit decision

Inquiry Becomes an Application Evaluation made on the credit information An inquiry must be treated as concerning the applicant an ECOA application if these Decision to decline the three conditions apply! credit request; and Declination is communicated to the applicant

Application Trigger • The response of the creditor to a consumer inquiry determines whether or not the inquiry becomes an ECOA application, not on what the applicant: • Says • Does • Asks

Inquiry Versus Application Applicant presents Lender replies with Inquiry facts regarding facts No notification personal financial Lender evaluates required information information and replies with opinion Oral Application Applicant presents Notification of facts regarding or judgement action taken personal financial information

Adverse Actions

Adverse Actions • Section 603 of the Fair Credit Reporting Act gives a broad definition to “adverse actions” • It includes all business, credit, and employment actions affecting consumers that have negative impact • Examples are denying or canceling credit or insurance, or denying employment or promotion • When adverse actions are taken, the consumer must be notified in writing, orally, or by electronic means

ECOA Notice Requirements • Notice must be provided to the applicant within thirty (30) calendar days of receipt of an application, even if the application is incomplete • Notices must be provided if the following actions are taken: • Approved Applications • Denied Applications - Adverse Action • Incomplete Applications

Approved Applications • An applicant must be notified, either orally or in writing, of approval of his/her loan request within thirty (30) calendar days of receipt of a complete loan application • Terms of the approval must be provided to the applicant orally or in writing as well

Denied Applications • Written notice must be sent within thirty (30) calendar days of receipt of a complete loan application • Must detail the specific reason(s) for adverse action (required by some state laws) or state that the applicant has the right to request specific reasons • With multiple applicants, only one notice is required to be sent

Counter Offers A creditor must notify the applicant of adverse action within 90 days after making a counteroffer to an application for credit if the applicant does not accept the counteroffer.

Adverse Action Notice

The Notice The contents of Adverse Action Notice for a mortgage transaction typically include: • Creditor name and address • ECOA anti-discrimination notice • Name and address of the primary regulator • A statement of action taken • Specific reasons for the action taken • Consumer rights • Name and address of the consumer reporting agency • Statement that the consumer reporting agency did not make the credit decision • Credit score disclosure if a factor in the decision

Right to Dispute The notice must include the individual's right to dispute the accuracy or completeness of any information the credit reporting agency furnished, and the consumer's right to a free report from the credit reporting agency upon request within 60 days.

Credit Agency Contact Info The notice must include the name, address and telephone number (toll-free) for the credit reporting agency that supplied the consumer report. Also, the notice must include a statement that the credit reporting agency that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it

Consumer Credit Scores The notice must include the consumer’s numerical credit score used to evaluate the loan request, the range of possible credit scores, all the key factors that adversely affected the credit score, the date on which the credit score was obtained, and the name of the entity providing the credit score or the information upon which score was created.

Common Notice Violations • Mishandling of incomplete applications • Not properly identifying the application as incomplete • Options available regarding incomplete applications: • Take action on the application and notify the applicant • Refrain from taking action and notify the applicant that the application is incomplete

Incomplete Applications

Incomplete Applications • An incomplete application is an application that does not contain enough information to permit a lender to make a credit decision • The missing information may only be provided by the applicant

Notice of Incomplete Application • If providing a Notice of Incomplete Application (NOIA), the notice must… • Be in writing • Detail information needed to complete the application • Provide a reasonable deadline • State the application with not be reviewed if the information is not received • Be provided within 30 days of the application

NOIA – No Response Applicant submits an The applicant dos not respond Lender takes no further action; application and is notified by to the lenders notice. application is cancelled as incomplete. the lender 10 days after application that the application is considered incomplete.

NOIA – Borrower Responds Applicant submits an The applicant responds Lender approves application and is to the lenders notice and application and notifies furnishes the requested borrower within 30 days notified by the lender 10 of receipt of requested days after application documentation. that the application is documentation. considered incomplete. Lender denies application and notifies borrower within 30 days of receipt of requested documentation.

Withdrawn Applications

Withdrawn Applications There are two types of withdrawn applications: • Applications withdrawn by applicant during the processing of the loan; or • Applications withdrawn or abandoned by applicant after loan approval

Documenting the Loan File • The file should contain a record of the applicant’s withdrawal request • Email from the customer • Documented note in the system detailing the customer’s request • Note the reason for withdrawal • Use of a “Withdrawal Confirmation Notice” is advised but is not mandatory

Withdrawn During Processing • An applicant expressly withdraws their loan application during the processing of the loan • Prior to a credit decision being made • Document your file accordingly • Cancel the loan as “Withdrawn” for HMDA reporting purposes

No Response - Withdraw • If the applicant has not inquired within thirty (30) calendar days after applying • Then the loan may be treated as withdrawn and the lender need not comply with the ECOA notification requirements

Withdrawn After Loan Approval • If the loan is approved and the applicant withdraws his loan request • Report action taken as “approved not accepted by applicant” for HMDA purposes • Document your file accordingly

Knowledge Check ECOA requires notification of approval or denial within: a. 30 days of credit inquiry b. 30 days of the initial application date c. 30 days of receipt of a complete application d. 30 days of loan approval or denial Answer: C An inquiry becomes an application under ECOA when the loan officer: (select all that apply) a. Evaluates credit information b. Makes a decision about credit worthiness c. Communicates a decision to the applicant Answer: all

Knowledge Check Borrower receives NOIA and calls stating they will not be submitting the requested documentation. This loan application should be: a. Cancelled, b. Withdrawn or c. Denied Answer: B The borrower applies for loan and is presented with a counter offer that is accepted. However, the day before closing the borrower calls and indicates they will not be buying the house. This application should be a. Cancelled, b. Withdrawn, c. Approved not Accepted or d. Denied Answer: D

Consequences of Violations • Fines of up to $10,000 per violation may be imposed • Lenders can be sued by individuals or face class action lawsuits • Claims may result in damage to reputation and an organization’s net worth

Reminders • Avoid any acts that could be considered as discouraging applicants • Ensure that files are properly documented so that it is clear you have complied with all ECOA notice requirements timely

Summary Based on our discussion, you should now be able to: • Recognize how the Equal Credit Opportunity Act ECOA and Reg B govern notices to the consumer regarding applications for credit • Handle approved, incomplete, denied and withdrawn credit applications • Adhere to adverse actions process requirements