Adverse Action Procedures
Presented By: Nadia Perrmann
July 30, 2014
A Guided Tour
Today we will be visiting a part of the ECOA, the
region of applications.
We will see…
• Regulatory Requirements for application notifications
• A completed application definition
• A checklist of items to be included in an adverse/withdrawn
file
• And more…
But first, a little history
Did you know…?
The Equal Credit Opportunity Act (Reg B) dates back to the time when…
• The cost of a gallon of gas was $0.55
• The average house price was $10,990
• President Nixon resigned after the Watergate scandal
• A 55 mph speed limit was imposed to preserve gas usage nationwide
• Work began on the 800 mile long Alaska Oil pipeline
The reg applies to all aspects of the credit transaction, whether commercial
or consumer in nature. The rule covers advertising, credit applications,
adverse action notices, appraisals, collections, and charge-offs.
Today’s Tour
Today we will be visiting the requirements of
Reg B specifically relating to adverse action
notifications and the documentation of our
files.
Requirements of Reg B
Consumer and Small Businesses
(annual revenues < $1MM)
Notification (in writing) of action
taken, ECOA notice, and
statement of reasons is to be
provided within:
• 30 days of receiving a completed
application when approving,
denying or offering counteroffer
• 30 days after taking adverse
action on incomplete application
unless a notification of
incomplete application has been
sent
• 30 days after taking adverse
action on existing account
Businesses with revenues > $1MM
Notification of action taken can
be provided orally or in
writing.
• A written statement of the
reasons for adverse action
and the ECOA notice is to be
provided if the applicant
makes a written request for
the reasons within 60 days of
the creditor’s notification.
ECOA Notice
Definition of Completed Application
Commercial
Consumer
The receipt of:
•
•
•
•
•
•
Borrower and guarantor Names and TINs
Tax Returns and Financial
Statements/Projections
Collateral description and estimated
value
Loan amount requested
Loan terms requested
Credit report on borrower and
guarantors
Or…
You communicate a decision to the
borrower based on the analysis of
information specific to that borrower. At
the point you received enough
information to make a decision, you have
a completed application and must
communicate decision within 30 days (60
for businesses with gross revenues >
$1MM).
Receipt of consumer application
(signed and dated by customer)
Or…
You communicate a decision to the
borrower based on the analysis of
information specific to that borrower. At
the point you received enough
information to make a decision, you have
a completed application and must
communicate decision within 30 days.
Completed Application
The clock starts now…
If you request additional information to verify
information provided in the completed
application, the clock stops until the day you
receive the information requested. This also
applies when you request items from third
parties such as appraisals or environmentals
needed to make a decision on the application.
When the clock starts up again, you have 30 days
to take action.
Incomplete Application
Completed Application
Requested Verification information
The customer does not respond to your
request
Incomplete Application
Pipeline
Once you have a completed application, input
the date you received the completed
application on pipeline.
Incomplete application option on status list?
Decisioning
You’ve now hit a crossroads…which way should
we go?
Approve
(No further
action
necessary)
Decline
Counteroffer
Withdrawn
Decline
You’ve made the decision to decline the loan.
Documentation
Adverse Action Worksheet
Declination Letter or Documentation of
communication of declination
File Documentation proving reasons for
declination
Counteroffer
Here’s what we can do…
Documentation
 Adverse Action Worksheet (include declination
reasons for original terms requested and counteroffer
terms)
 Combined counteroffer/declination letter
(consumer/small business)
 Documentation of communication of counteroffer
(businesses > $1MM revenue)
 File Documentation proving reasons for declination
Withdrawn
Is it withdrawn?
It is if…
• The customer made contact requesting the
application be withdrawn.
• The Bank approved the loan and the customer
declined.
Again, let’s look at the documentation:
 Adverse Action Worksheet
 Date and method of withdrawal
 File Documentation noting bank approval if applicable
Documenting the File
Tell the story through documentation.
Document correspondence.
Watch for conflicting information.
Scenarios
Ice Cream Shop
Computer Software Expansion
Discussion
Application Form for Commercial Applicants?
If you include statement of reasons disclosure
and ECOA notice on the application (in a form
the customer may keep), you can notify the
small business customer verbally or in writing.
Have to get application at time of receiving
completed application information.