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Thursday, August 15, 2013

Notice of Incompleteness

In issuing a "Notice of Incompleteness" under the Equal Credit Opportunity Act, what is a "reasonable time frame" to give the applicant for completion of the application?

We are a lender with a current policy of allowing an applicant an additional thirty (30) days beyond the initial thirty (30) day ECOA requirement to complete an "incomplete application". In accordance with policy, if the application is not completed within this thirty (30) day period, the loan needs to be moved to withdrawn by the applicant or is deemed a cold lead.

However, we are finding that this policy requires many files to be disposed of well before the applicant has either finished shopping lenders, or chosen a house to buy.

Is it possible for us to change the thirty (30) day period for the applicant to complete the application to sixty (60) days?

In issuing a "Notice of Incompleteness", the creditor must provide a "reasonable period of time" for the applicant to complete the application.  [12 CFR § 1002.9(c)]

Unfortunately, Regulation B does not prescribe what constitutes a "reasonable period of time" nor is there any guidance on this issue.  Under the ECOA, a completed application is one in which the "creditor has received all of the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested", and presumably would include information relating to the collateral. 

Thus, if the lender is finding that many applicants need additional time to choose a home to buy, an extension of the time period from 30 to 60 days seems reasonable and appears to be justified under the regulations. 

By contrast, since an applicant is under an obligation to exercise due diligence in obtaining the information, if the real force behind extending the time period for completion of the application is to allow the applicant time to finish shopping the loan, the lender would not be justified in extending the time period. [12 CFR §1002.2(f)]

*Joyce Pollison
Director/Legal and Regulatory Compliance 
Lenders Compliance Group