ABA Banking Journal - September 2007 - (Page 57)

applicant returns the completed application to you, you realize that the application is for a 1975 AMC Gremlin. Your policy is that you only make used car loans for cars not more than seven years old. Is an adverse action notice required? Yes, in this case, because this application is for credit secured by collateral that you do not accept. Thus, the situation changes when a consumer makes an application. This is the point at which the commentary makes a distinction between types of credit and terms of credit. Indeed, the first words of the commentary to §202.2(c)(2)(v)1 state “[w]hen an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant . . .” In this second scenario, an adverse action notice, or a counteroffer, would be necessary because the bank has received a completed application from an applicant and denied the application for the reason that the creditor does not offer the credit terms requested by the applicant. The bank must either send an adverse action notice stating the reason for denial is that the bank only offers used car loans for cars not less than seven years old, or make a counteroffer. Or consider the following example. Suppose that the applicant applies for credit to purchase a 2005 Mercedes, but asks for a seven-year term in the completed application he submits. Because we are in the application phase and the length of loan maturity is a “term” of the loan, an adverse action would be required. Alternatively, the bank could make a counteroffer for a length of loan maturity term that the bank does offer—say a 48month loan. Another angle on the issue So what is a “type” of credit where an adverse action is not required? Take our scenario one step further and when the customer returns the application he asks for a home equity line of credit (HELOC) to finance the purchase of the 2005 Mercedes. Your bank does not make any HELOCs. In this case, an open-end, residential real estate secured loan would be considered a different type of loan, not just a different term of the loan. No adverse action notice would be required to comply with Reg B. However, as a matter of sound business practice, you would inform the applicant that HELOCs are not offered by your bank. Remember that when implementing the distinctions in the regulation, you must be careful that bank employees do not discourage applicants. Many banks find it easier to instruct front-line customer staff to be helpfully informative, but to be willing and open to take any application from any interested potential borrower. Even during the inquiry stage of shopping, information can be provided by the customer that complicates the compliance process and can cause the situation to inadvertently cross the line from inquiry to “application” even though no formal paperwork has been completed. Therefore, make sure you have a process that works in the real world of customer interaction, and one that employees can be trained to implement in a compliant manner. BJ ABA BANKING JOURNAL/SEPTEMBER 2007 57 http://www.monarchpg.com http://www.monarchpg.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - September 2007

Contents Editor's Column Briefing: Why Money Sense is a Top Priority Briefing: Sleight of Mind Briefing: Snapshot: What the First Half Tells Us About the Second Half Briefing: ABA Resources ABA Chairman’s Position Briefing: Get Away and Get Ahead: ABA's Banking Leaders Forum Community Banking: Trim the Fat: Winning the "Battle of the Buck" Community Banking: Pass the Aspirin Cover Story: Meeting the Challenge of the "Unbanked" Bank Marketing: Don't Miss the Boom! On the Job: Time to Power Up Your Presentations? Insurance Sales: The Art & Craft of Cross Selling Tech Topics: The Price is Right? Tech Topics: Security: Protect Information First Tech Topics: Hackers for Hire? You Bet'cha Tech Topics: Case in Point: Tellers Scan, Too, at First Federal Compliance Clinic: Adverse Action Clarified The Economy Banker’s Mart To Advertise/Index of Advertisers

ABA Banking Journal - September 2007

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