Adverse Action Reason When the Bank is Not Offering New Credit During the COVID-19 Crisis

Issue/Inquiry

If the Bank is not offering new credit during the COVID-19 crisis, what reason will be sufficient for an Adverse Action Notice?

Response Summary

Under Regulation B, a creditor must provide the principal reason or reasons for an adverse action on a credit request. The reason does not need to indicate why such a factor adversely affected the applicant. In this case, it would be sufficient to state that the Bank is not offering new credit during the COVID-19 crisis.

Response Detail

Regulation B, which implements the Equal Credit Opportunity Act, requires a creditor to provide the applicant with the principal reason or reasons for an adverse action on a credit request. The reasons must be specific, but it does not need to indicate how or why such a factor adversely affected the applicant. For example, the notice may say “length of residence”, rather than “too short a period of residence”. 12 CFR 1002.9(a)(2)(i); Official Interpretations, 1002.9(b)(2) – 3.

The regulation does not specify what reason must be given for a particular situation, although the model Adverse Action forms in Appendix C are illustrative of the type of language that might be used, such as the following:

• Length of employment
• Income insufficient for amount of credit requested
• Excessive obligations in relation to income
• Unable to verify income
• No credit file
• Poor credit performance with us

Statements that the adverse action was based on the creditor’s internal standards or policies, or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor’s credit scoring system, are insufficient. 12 CFR 1002.9(b)(2).

In this case, the Bank is no longer offering new credit during the period of the COVID-19 crisis. It would be sufficient to state this as a reason, just as the Bank would decline a credit request for a loan product that it does not offer. The statement of the reason could appear as follows: “Bank is not offering new credit during the COVID-19 crisis.”

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, April 20th, 2020 at 9:47 am.