QUESTION
I am in the underwriting department and have a question about notifying the borrower about our decision to approve or adverse their loan.
We provide an approval, counteroffer, or we adverse the loan. We underwriters here have a system that does not correctly differentiate the notification timing for counteroffers versus adverse action. But I believe counteroffers get additional time on notifications.
I think this also has to do with how we define a counteroffer and adverse action. Our system works with a set of rules, and I think the rules are incorrectly defined. So, here are my questions.
What are the notification requirements for our decision to approve, counteroffer, or adverse a loan?
What is a “counteroffer?”
What is “adverse action?”
ANSWER
Creditors are subject to specific notification requirements under the Equal Credit Opportunity Act (ECOA) in connection with credit applications, with the notice requirements varying based on the action taken by the creditor and whether the application is for consumer credit or business credit.
Under the ECOA, there are four notification timing requirements for consumer credit.
1. Thirty (30) days after receiving a completed application concerning the creditor’s approval of, counteroffer to, or adverse action on the application;
2. Thirty (30) days after taking adverse action on an incomplete application, unless an incomplete application notice is provided under procedures specified in Regulation B, the implementing regulation of the ECOA [see section 202.9(c)];
3. Thirty (3) days after taking adverse action on an existing account; or
4. Ninety (90) days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.[i]
With respect to defining a “counteroffer,” it refers to when a creditor offers to grant credit in a different amount or on other terms than the amount or terms requested by the applicant.[ii]
You might want to know that, pursuant to the ECOA, a counteroffer need not be held open for any particular length of time.[iii]
Defining adverse action is a bit tricky, so I will provide what it means and doesn’t mean.
What does “adverse action” mean:
1. A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer and the applicant uses or expressly accepts the credit offered;
2. A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts; or
3. A refusal to increase the amount of credit available to an applicant who has applied for an increase.[iv]
What “adverse action” does not include:
1. A change in the terms of an account expressly agreed to by an applicant;
2. Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
3. A refusal or failure to authorize an account transaction at the point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;
4. A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or
5. A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.[v]
Finally, there is the matter of determining when a notification occurs. Notification occurs when a creditor delivers or mails a notice to the applicant’s last known address or, in the case of an oral notification, when the creditor communicates the credit decision to the applicant.[vi]
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
[i] 12
CFR §
202.9(a)
[ii]
12 CFR §
202.2(c)(1)
[iii]
12 CFR, Supplement I to Part 202 – Official Staff Interpretations §
202.9(a)(1)-5
[iv]
12 CFR §
202.2(c)(1)
[v] 12
CFR §
202.2(c)(2)
[vi] 12
CFR, Supplement
I to Part 202 – Official Staff Interpretations § 202.9-3
