QUESTION
As a mortgage broker, we are trying to minimize our
responsibility to issue denial letters. If we do not have the six pieces of
information or otherwise take an application, but pull a consumer’s credit
through a credit vendor rather than our LOS software, do we need to issue a
denial?
ANSWER
If you are pulling credit, regardless of whether
you are doing so from your own LOS software versus a credit vendor, and a
credit decision is being made (i.e., declining the loan based on credit) and
communicated to the consumer, under the Equal Credit Opportunity Act (“ECOA”)
and its implementing regulation, Regulation B, an adverse action notice must be
sent to the consumer within 30 days.
Under ECOA and Regulation B, a notice of action
taken must be provided within thirty days of receipt of a completed
application. [12 CFR § 1002.9(a)(1)] For ECOA and Regulation B purposes, a
creditor has a completed application when 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. [12 CFR § 1002.2(f)]
The ECOA definition of application differs from the
definition of an application under the TILA-RESPA Integrated Disclosure Rule
(“TRID”). Under TRID, a creditor has an application upon the consumer’s
submission of his name, income, social security number to obtain a credit
report, the property address, an estimate of the value of the property, and the
mortgage loan amount. [12 CFR §
1026.2(a)(3)(ii)]
Under ECOA, it is how the creditor treats the
information submitted by the consumer that determines if the creditor has an
application. It is entirely possible that the creditor may have an application
under ECOA prior to receiving the six pieces of information required under
TRID. For example, if in discussing a prequalification or any other request
with a consumer, the loan officer obtains the consumer’s permission to pull
credit, actually pulls and reviews the credit report, determines that the
consumer will not qualify for any of the lender’s programs, and communicates
this decision to the consumer, those actions trigger the need for a Regulation
B adverse action notice.
It should be noted that as a mortgage broker does
not have the authority to participate in a credit decision, it is the lender
who should issue the adverse action notice.
The caveat to this general rule is that a broker may issue the notice on
behalf of the lender; however, if it does so, the notice must include the
identity of the lender which declined the loan. [12 CFR 1002.9(g)] So,
essentially, a broker must seek a lender’s denial for the consumer in order for
the Regulation B notice to issue.
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
