QUESTION
We were recently told about a “carrot and stick” disclosure for
counteroffers under ECOA. Our compliance department wasn’t able to find anything
on it, but we would still like to know more. What is this “carrot and stick”
disclosure?
ANSWER
The terminology “carrot and stick” for the subject disclosure is rarely
used in common compliance parlance. However, there really is a disclosure under
the Equal Credit Opportunity Act (ECOA) that old hands at mortgage compliance
sometimes still refer to as “carrot and stick.”
This metaphorical term usually refers to the ability of a lender to
issue a disclosure that combines a counteroffer with an adverse action notice.
A creditor that gives an applicant a combined counteroffer and adverse action
notice need not send a second adverse action notice if the applicant does not
accept the counteroffer. [12 CFR Supplement I, Part 202, Official Staff
Interpretations, § 202.9(a)(1)-6]
Appendix C to Regulation B, the implementing regulation of ECOA,
includes a sample of a combined counteroffer and adverse action notice, which
is given in form C-4 of Appendix C to the regulation. [12 CFR Part 202,
Appendix C-4]
Jonathan Foxx
Managing Director
Lenders Compliance Group
