Regulations B and C and the Date of the Application

Issue/Inquiry

The Bank uses a business loan application that requires certain additional information, such as financial statements, tax returns, and organizational documentation. Once the Bank receives the signed application and required documentation, a “work order” is completed by the loan officer, a credit report is ordered, and the credit underwriting process begins.

Rather than using the date the business loan application was signed, the Bank uses the date of the work order as the date a completed application has been received, which starts the 30-day clock for notification of the action taken on the request. Is such process compliant with the requirements of Regulations B and C?

Response Summary

Regulation B gives a creditor latitude to establish its own application process and define what a completed application consists of. Regulation C is consistent with Regulation B in this regard. Therefore, the Bank’s current practices are compliant with the regulatory requirements.

Response Detail

Under Regulation B, when a creditor has obtained all the information it normally considers in making a credit decision, the application is deemed complete and the creditor has 30 days to notify the applicant of the credit decision. Official Interpretations, 1002.9(a)(1) – 1.

Regulation B defines an “application” as follows:

Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit. A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information. 12 CFR §1002.2(f).

The term “procedures” means the actual practices followed by the creditor and its stated application procedures. If a creditor has a policy stating that it accepts only written applications, but accepts both written and oral applications in practice, then its procedures are to accept both written and oral applications. Official Interpretations, 1002.2(f) – 2.

As per the official commentary, a creditor is given the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to collect the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. Official Interpretations, 1002.2(f) – 6.

Under Regulation C, an application is an oral or written request for a covered loan—that is, a loan covered by HMDA—that is made in accordance with procedures used by a financial institution for the type of credit requested. The interpretations pertaining to applications in the official commentary to Regulation B are generally applicable to the definition of “application” under Regulation C. 12 CFR §1003.2(b)(1); Official Interpretations, 1002.2(f)(1) – 1.

In this case, the Bank can define what a “completed application” is for its purposes. If such an application is the signed business loan application form and related documentation, then it should follow this practice consistently. If the preparation of the work order by the loan officer commemorates the receipt of the documentation required for a completed application, then the date of the work order can be used as the application date for the purpose of notification requirements of Regulation B and the application date for HMDA-reporting purposes.

Based upon what the regulatory requirements cited indicate, an application may be considered completed when information such as that within a credit report has been received. The Bank’s practice is to consider the application complete when it receives the signed application form and certain related information, after which it orders the credit report. The Bank, if it wished, could reasonably date the completed application using the date in which the credit report is received, but this is a business decision for the Bank to make.

The Bank’s current practices are compliant with the requirements of Regulations B and C. We would recommend that the requirements be formalized in the Bank’s ECOA and HMDA policy statements, if such had not been already done, and be consistently followed thereafter. If such practices are changed (e.g., in dating the completed application from the receipt of the credit report), then the formal statement should also be changed and the practices should be followed consistently thereafter.

 

 

This entry was posted on Monday, September 24th, 2018 at 6:00 am.