When does a member’s inquiry about the credit union’s lending products become an “application,” triggering compliance with Regulation B’s adverse action notice provisions? Inquiring minds want to know, as we often receive questions from credit unions regarding these requirements.
Regulation B requires a credit union to notify an applicant of the action taken within 30 days after receiving a completed application concerning the creditor’s approval of, counteroffer to, or adverse action on the application (i.e., denial).Section 1002.9(a)(1) And a completed application means a creditor has received all the information that it regularly obtains and considers in evaluating applications for the amount and type of credit requested. Section 1002.2(f)
Whether the inquiry becomes an application depends on how the credit union responds to the member’s inquiry, not on what the member asks or says to the credit union’s lending staff. According to the CFPB’s commentary to Regulation B: if in giving information to a member, the credit union also evaluates information about the individual, decides to decline the request, and communicates this to the member, the credit union has treated an inquiry as an application and must comply with the adverse action notification requirements. Comment 2(f)-3
The following inquiries are not “applications” under Reg B:
- A member calls to ask about loan terms and the loan officer explains the credit union’s basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.
- A member calls to ask about interest rates for auto loans, and, in order to quote the appropriate rate, the loan officer asks for the make and sales price of the car and the amount of the downpayment, then gives the member the rate.
- A member asks about terms for a loan to purchase a home and tells the loan officer their income and intended downpayment, but the loan officer only explains the credit union’s loan-to-value ratio policy and other basic lending policies, without telling the member whether they qualify for the loan.
- A member calls to ask about terms for a loan to purchase vacant land and states their income and the sales price of the property to be financed and asks whether they qualify for a loan. The loan officer responds by describing the general lending policies, explaining that the credit union would need to look at all of the member’s qualifications before making a decision, and offering to send an application to the member. Comment 2(f)-4
What about prequalification requests? A credit union may treat a prequalification request as an inquiry if it evaluates specific information about the member, provides the loan amount, rate, and other terms the person could qualify for under various loan programs, and explains the application process. However, a prequalification request becomes an application under Regulation B and subject to adverse action notice requirements if, after evaluating the information, the credit union decides that it will not approve the request and communicates that decision to the member. Comment 9-5
Lastly, how are “preapprovals” treated under Regulation B? The commentary to Regulation B clarifies that the definition of “application” includes certain preapproval requests. For example: a member asks the credit union to preapprove them for an auto or home loan. The credit union reviews the request, evaluates the consumer’s creditworthiness, and issues a written commitment valid for a designated period of time to extend a loan up to a specified amount. (If a creditor’s lending program does not provide written commitments, requests for preapprovals are treated as prequalification requests for purposes of the regulation.) Again, if the credit union evaluates the applicant’s creditworthiness and determines that they don’t qualify for a preapproval, an adverse action notice will be required. Comment 2(f)-5
Questions? Please reach out to the Compliance Team at compliance@americascreditunions.org.