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#1785874 - 02/13/13 10:12 PM
ECOA Notice and statement of specific reasons
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Junior Member
Joined: May 2012
Posts: 29
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Good afternoon all! Need to guidance as to what would be the "specific reasons" stated if we are auto-decisioning applications for a certain product based on Beacon score and DTI. If I use model form C-5, that is fine, but if a customer wishes to know the specific reason for the adverse action, what is the correct reason? If it is declined because of DTI then that is a no brainer. But if it fails to meet the minimum beacon score we have established, what do we say? The actual reason is because credit score was too low, but in 12 CFR 202.9(b)(2) it states: (2) Statement of specific reasons. The statement of reasons for adverse action required by paragraph (a)(2)(i) of this section must be specific and indicate the principal reason(s) for the adverse action. 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 the qualifying score on the creditor's credit scoring system are insufficient.
Much appreciated.
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#1785885 - 02/13/13 10:33 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Power Poster
Joined: Jun 2003
Posts: 7,817
Florida
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Use the reasons listed on the CB notice. They are the (largest) reasons the score was not higher.
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#1785996 - 02/14/13 02:40 PM
Re: ECOA Notice and statement of specific reasons
Rocky P
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Junior Member
Joined: May 2012
Posts: 29
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That was our first thought. However, after reading a little further we came across this: 9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or its own files. Disclosing that a consumer report was obtained and used in the denial of the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant's credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy § 202.9(b)(2) the creditor must disclose that the application was denied because of the applicant's delinquent credit obligations. The FCRA also requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). Disclosing the key factors that adversely affected the consumer's credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. Disclosing the key factors that adversely affected the consumer's credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. Sample forms C--1 through C--5 of Appendix C of the regulation provide for both the ECOA and FCRA disclosures. See also comment 9(a)(2)--1.
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#1786006 - 02/14/13 02:58 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Power Poster
Joined: Aug 2001
Posts: 7,390
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The factors affecting the score generally equate somehow to the ECOA "model" reasons for denial in the regulation. You can start there.
If you can't find anything, perhaps your credit score requirement is too high.
For example, there is a "magic" credit score for applicants who apply for mortgage loans to be sold on the secondary market. I prepare AANs for denials when the credit score is below the threshold. There is ALWAYS something adverse in the credit report when the score is too low.
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#1786051 - 02/14/13 03:52 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Junior Member
Joined: May 2012
Posts: 29
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I'm still unclear. In the OP the reference says that I cannot use something like "did not meet qualifying credit score" as a specific reason. Then it states that I cannot use the key factors from the credit report as a specific reason. The specific reason is actually the credit score is below X.
Any more insight? Thanks for your help.
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#1786070 - 02/14/13 03:59 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Power Poster
Joined: Oct 2009
Posts: 9,378
OK
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I think you're taking that quote out of context perhaps. What that means to me is when you are required to disclose the credit score on an AAN, you must give the key factors that led to that score, but doing so does not get you out of disclosing the specific reasons for the denial. I think "delinquent past or present credit obligations with others", "garnishment, attachment, etc." might be some of the reasons (where applicable) that you're looking for. Just my 2 cents.
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#1786073 - 02/14/13 04:01 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Gold Star
Joined: Apr 2012
Posts: 366
In the mountains
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If the credit score is low, you should be able to attribute that to, for example, past or present delinquencies or perhaps there are no past dues, but the applicant is over-extended and has excessive obligations. Even paid colletions or other public records can impact the score for a period of time as they age. Unless the score requirement is too high, as another poster mentioned, you should be able to find one or more factors to support the denial.
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#1786116 - 02/14/13 04:34 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Power Poster
Joined: Aug 2001
Posts: 7,390
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Ignore the score and it's factors and just look at the credit report itself. What about it would make the applicant undesirable for a loan? If you can't find anything, you need to review your score threshold.
Perhaps the borrower has no derogatory credit but doesn't have very many trade lines......."insufficient credit file."
Again....there is something in that report that is causing the score to be low. You have to figure out what it is and pick a Reg B defined reason that matches up to what you find.
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The more you sweat in training, the less you bleed in battle.......
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#1786165 - 02/14/13 05:19 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Junior Member
Joined: May 2012
Posts: 29
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For example:
Borrower applies electronically for this loan product. Their credit score is automatically pulled and their score is below the threshold and we send them Form C-5. If they call or write for the specific reasons we just need to find something adverse in the credit file that was not listed in the key factors in the form and state that, such as "delinquent past or present obligations with others"? Seems that could possibly open up some Fair Lending issues.
I guess I'm still hung up on the specific reasons. Non-qualifying credit score to me is the specific reason "actually considered" and the items listed are just factors the bureau uses to score.
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#1786179 - 02/14/13 05:30 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Power Poster
Joined: Aug 2001
Posts: 7,390
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The legislators/regulators do not want banks to tell consumers that their credit scores are too low to qualify for a loan. They want banks to tell consumers WHY their credit scores are too low to qualify for a loan. The ECOA lists "appropriate" reasons to use. Most banks don't let lenders (or anyone) stray from using one or more of those exact reasons......pretty much a safe harbor.
Remember, the ECOA and the FCRA are two different regulations with two different sets of requirements. They don't necessarily mirror or match.
ECOA says, "tell the consumer the reason for a loan denial, preferably using an 'ECOA approved' reason."
FCRA says, "if you deny a loan based on info in a consumer report, tell the consumer the score, the factors affecting the score, the range of scores, etc."
Most banks just combine these requirements into one form.
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The more you sweat in training, the less you bleed in battle.......
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#1786497 - 02/15/13 04:07 AM
Re: ECOA Notice and statement of specific reasons
Ydae
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10K Club
Joined: Jul 2001
Posts: 85,422
Galveston, TX
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The ECOA lists "appropriate" reasons to use. Most banks don't let lenders (or anyone) stray from using one or more of those exact reasons......pretty much a safe harbor.
Ahhh - that's not what Regulation B says:
Appendix C
3. The sample forms are illustrative and may not be appropriate for all creditors. They were designed to include some of the factors that creditors most commonly consider. If a creditor chooses to use the checklist of reasons provided in one of the sample forms in this Appendix and if reasons commonly used by the creditor are not provided on the form, the creditor should modify the checklist by substituting or adding other reasons. For example, if “inadequate down payment” or “no deposit relationship with us” are common reasons for taking adverse action on an application, the creditor ought to add or substitute such reasons for those presently contained on the sample forms.
4. If the reasons listed on the forms are not the factors actually used, a creditor will not satisfy the notice requirement by simply checking the closest identifiable factor listed. For example, some creditors consider only references from banks or other depository institutions and disregard finance company references altogether; their statement of reasons should disclose “insufficient bank references,” not “insufficient credit references.” Similarly, a creditor that considers bank references and other credit references as distinct factors should treat the two factors separately and disclose them as appropriate. The creditor should either add such other factors to the form or check “other” and include the appropriate explanation.
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#1786717 - 02/15/13 04:48 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Junior Member
Joined: May 2012
Posts: 29
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Thanks for the input everyone.
I'm still caught up on "factors actually used". To me, credit score is the only factor "actually used", not the components the bureau used to come to a score. But you cannot use credit score as a reason.
So in my case, if we are approving through an automated software solely on credit score....if you are above X, approved and if you are below declined, what do you recommend we use as specific reasons if we send them notice via Form C-5? Is there an alternate form that would be better practice?
Thanks again guys.
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#1787014 - 02/16/13 02:32 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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10K Club
Joined: Jul 2001
Posts: 85,422
Galveston, TX
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I agree with KPOC. That is exactly what the passage is indicating.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2174662 - 04/23/18 05:18 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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What do you list when you have to deny for credit concentration purposes?
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#2174732 - 04/23/18 07:41 PM
Re: ECOA Notice and statement of specific reasons
Ydae
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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This one was a lot more active. I figured that might get more eyes on it. I didn't think it was all that unrelated, as it dealt with "Statement of Specific Reasons." I'm just looking for some thoughts here, if you want to beat me up for using two threads, fine.
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