2023 Adverse Action Notices with Small Creditors Compliance
Small Creditors, Small Lenders & Small Servicers
Join us for a one day program that will cover two areas of focus, 1) Adverse Action and 2) Small Creditors, Lenders, and Servicers. Compliance Officers invite your lenders, loan specialists and loan operations to consider joining you on August 31.
Institutions take “adverse action” – that is, deny credit – all the time. The Equal Credit Opportunity Act (ECOA)/Regulation B and Fair Credit Reporting Act (FCRA), if applicable, provide specific rules that require creditors provide notification of an adverse action, including counteroffers.
Accurate completion of adverse action notices is important for several reasons in that their accuracy and timeliness are reviewed during compliance exams, the notices serve as one of the first steps in fair lending examinations, and, significantly, for certain institutions subject to HMDA reporting, the reasons for denial may be required reporting on the Loan Application Register. Some applications just linger for days or months with no action, but these rules require that every application be “closed-out.”
During this session, you’ll learn when an application is “complete” and when to send a notice to the customer. We’ll also discuss what to say in the notice, including disclosure of a “specific and principal” credit reason – for example, is it sufficient to disclose “investor guidelines” or “credit score” as a reason for denial on the ECOA/Reg B adverse action? How does the FCRA adverse action differ? We’ll also review the HMDA requirements to report the reasons for denial.
HERE IS WHAT YOU WILL LEARN:
• What is the definition of adverse action?
• When is an application complete?
• How many reasons for denial should you give?
• What are common errors in completing adverse action notices?
• What are the requirements for incomplete applications?
• How do you properly document withdrawn applications?
• What is the best approach in handling counteroffers?
• What are the timing requirements for denials under Regulation B?
• What if the denial reason came from the credit report or the credit score?
• What should you do if the borrower or co-borrower, or both, has bad credit or bad credit scores? Who gets the notice?
• What is the difference between the FCRA and ECOA notices?
• Is it important to conduct a second level review of adverse action notices for fair lending purposes?
Small Creditors, Lenders, and Servicers
Small institutions generally engage in “relationship banking” and are more likely to understand and try to help their customers. For that reason, in drafting the applicable laws and regulations, the U.S. Congress and Federal agencies sometimes created different options or exclusions. While these rules and exceptions may be helpful to smaller institutions, they often are detailed and confusing. Notably, examiners have been finding increased violations regarding these provisions, particular the escrow requirements under the Flood Insurance rules, which require, when an institution ceases to qualify as a small lender, to not only start escrowing but also provide existing customers with the option to escrow (unless otherwise exempted).
This session will discuss these rules in detail. We will start with the basic rule, walk through the definitions of "small creditor," "small lender," and "small servicer," including transition issues, and the additional options or exclusions available.
HERE’S WHAT YOU’LL LEARN:
- Definition of “small creditor,” “small lender,” and “small servicer”
- Losing status
- Small creditor rules: HPML and Qualified Mortgages (TILA/Reg Z)
- Small lender rules: Escrow (Flood Insurance)
- Small servicer rules: Periodic statements (TILA/Reg Z) and numerous mortgage servicing rules under RESPA/Reg X