Can I beat a dead horse? I am so confused regarding exactly when a status check must be done for a cover loan. Here is a poll. Comments too, please!

Section 232.5 from the Federal Register

"the creditor may make a determination regarding a consumer applicants status generally when the creditor enters into a transaction or establishes an account that is (or could be) consumer credit...."

I have interpreted that to mean at application for our institution...

Feel free to laugh and throw things at me, but I'm still trying to figure out how we would check the status of an applicant 30 days before application. Is this saying that I can check when the customer says I'm looking for a car but hasn't given me enough info for a credit app? If so, I better not see any credit report ordering!

Cornfed, that provision is for psychics who finance their fees.

Our process will be to check the DOD database soon after we receive an application.

Here is how I understand it.

A customer comes in the branch on 9/1/2016 and applies for a car loan. At that time we would pull the customer's military status and all other items needed to qualify the loan.

The same customer then comes back in to the branch on 9/15/2016 and applies for a lot loan. We could use the customer's military status confirmation that was pulled on 9/1/2016 for this new loan because it is within 30 days.

Agreed. And if 30 days has passed since the credit report (or whatever means used to document status) but the loan hasn't closed yet, you would re-check military status. Thanks, NSF.

And...ouch!.....you said "lot loans." I don't want to do a lot loan! Just sayin'

To my understanding, we don't "enter into a transaction" or "establish an account" until the documents are signed. We are allowing military status to be checked anytime between application and loan closing. But . . . it will be checked with the credit report at the time of application or shortly after.

Ditto Bville.

We will be using the credit report method also......new consumer loan request.....new credit report. No re-using of credit reports even if within 30 days. I am one of those in the camp that thinks that is illegal anyway. I am happy to finally "get my way." We typically access credit same day, next day, or possibly the third day.

Is your bureau truly going to be ready? Just curious.

They SAY they will be.

Experian

Most likely a consumer loan would close within 30 days of application but for lot loans it is unlikely one would close that quickly so would we need to pull another determination of status prior to loan closing if the last determination was more than 30 days prior but is for this loan request?

I am interested in discussion on this as well. Our lot loans take from 30 to 45 days to close, typically.

Yes. The covered borrower check is only good for 30 days. So if they apply and 31 days later you are going to be funding the loan, you will have to check again before funding.

Oh good grief!!

I'm not reading the reg to say the covered borrower check is good for only 30 days. Can you guide me to that in the regulation? 232.5(b)(3)(iii) allows the check to be good for 60 days if a firm offer of credit is extended to the borrower (if certain requirements are met). I'm afraid I'm missing something important.

232.5(b)(3)(i)(ii) and it depends upon the definition of "initiates a transaction" which is anyone's guess. Is it "initiated" when the borrower applies? Or is it "initiated" when the loan is closed?

Bville- I think the "firm offer of credit" is referring to a pre-approval campaign where you mail out the offer. I never took it to mean if they applied, you approved it, and they took forever to get documents back, etc that you could use the covered borrower check for up to 60 days.

As always with this poorly written reg... Until further clarification is received, we will go with another check if the loan is 30 past the original check. Luckily, we have LOS software that will not allow the loan to proceed if the covered borrower check is over 30 days old.

Thanks, now I understand why it's being interpreted that the check is only good for 30 days, which I find very depressing.

On the other hand in the interpretative Q&A it says, "to benefit form the safe harbor provision, a creditor must determine a consumer's covered borrower status at or before the time of the transaction or the time an account is established and make a record of the determination." I want to read this as saying there is no limit on how long the determination is good for.

I was reading that the same way as you Bville. I initially thought 30 days, but after seeing that in the interpretive rule I changed my initial stance. Any other thoughts?

I don't think the interpretation can trump the regulation. I think the regulation is very clear on the 30 days and that it wasn't necessary to expand upon that in the interpretation.

I am now doubting that the status check is only valid for 30 days - in the section by section analysis to 232.5 it states the creditor need to undertake this coverer borrower check only once, namely, only at the time that (I) a consumer initiates the transaction, (ii) a consumer applies to establish the account, or (iii) the creditor develops or processes, with respect to a consumer, a firm offer of credit that (among the specific criteria used by the creditor for the offer) includes the status of the consumer as a covered borrower.

I am reading this to mean if we pull credit and have the MLA status check included, if the loan doesn't close for 30+ days we don't need to check the status again.

Any one else agree with this?

(3) Determination and recordkeeping; one-time determination permitted. A creditor who makes a determination regarding the status of a consumer by using one or both of the methods set forth in paragraph (b)(2) of this section shall be deemed to be conclusive with respect to that transaction or account involving consumer credit between the creditor and that consumer, so long as that creditor timely creates and thereafter maintains a record of the information so obtained. A creditor may make the determination described in this paragraph (b), and keep the record of that information obtained at that time, solely at the time—

(i) A consumer initiates the transaction or 30 days prior to that time;

(ii) A consumer applies to establish the account or 30 days prior to that time; or

(iii) The creditor develops or processes, with respect to a consumer, a firm offer of credit that (among the criteria used by the creditor for the offer) includes the status of the consumer as a covered borrower, so long as the consumer responds to that offer not later than 60 days after the time that the creditor had provided that offer to the consumer. If the consumer responds to the creditor's offer later than 60 days after the time that the creditor had provided that offer to the consumer, then the creditor may not rely upon its initial determination in developing or processing that offer, and, instead, may act on the consumer's response as if the consumer is initiating the transaction or applying to establish the account (as described in paragraph (b)(3)(i) or (ii) of this section).

I know there are several posts on here about WHEN you need to verify if they are or are not a "covered borrower". I keep going back to:
(i) A consumer initiates the transaction or 30 days prior to that time;

(ii) A consumer applies to establish the account or 30 days prior to that time

I'm understanding (i) to mean when the loan IS consummated or 30 days prior, and (ii) to mean at the time the consumer makes application for the loan, or 30 days prior.

So IF I'm understanding this correctly, I feel at my bank, we will have to do them the day of loan closing. My loan officer's in most cases will not even get an application for most of the covered loans, with the exception of vacant land. We are in a small rural community so the biggest majority of customers have banked with us for several years and loan officer's don't make them fill out new application forms each time.

I am the Compliance Officer and if I had to be certain they are pulling this information at the time of application, I have nothing to verify when they actually made application for the loan. Like I said, I'm so confused on this stuff but does anyone else see this as an issue?

I am thinking you can do the check anytime between application and closing - we are utilizing the credit report for the MLA status check which will be run shortly after application.

I don't follow the thought process of the rule allowing the check up to 30 days prior to application - we are not psychics. Although by using the credit report we will know there has been an application taken.

Beth, I take it to mean if a customer applies for a loan on August 1st and comes back and applies for another loan on August 15th, you can re-use the check.

Even though a person coming back within 30 days for a different loan request is rare, we're not going there. New loan request, new credit report, period. The ONLY exception I think we might consider is when people apply jointly, the loan is denied because of one of the applicants, and the other applicant wants to re-apply alone.....course, the new loan would have to close within 30 days of the date of the credit report!

Swiggles,
We are taking the same stand as you.
I haven't let my people know it is even possible to re-use.
New request, new application, new check. PERIOD.....

I am optimistic.

I have actually always wanted this. Now, I get my way.

I'm interpreting as Farm Girl is - at application or before loan is made, not must be done at application or 30 days prior to application. Is that correct?

I am still not interpreting this to indicate the Safe Harbor is only retained if the bureau is less than 30 days old. Are others really going to pull new bureaus each time a credit report is over 30 days? Thinking of the impact specifically on lot loans.

The lot loan product seems to be the only problem. We are thinking about initially using the credit report and then if the closing is going to go past 30 days, going to the DOD website for the final check.

I agree the lot loan product is typically the only product where you would encounter this issue. All other covered loan types tend to turn around in a much shorter timeframe. I am still not interpreting the Safe Harbor to only be retained if the bureau is less than 30 days old. Is this just the conservative approach you are taking based on the ambiguity in the reg?

Swiggles, I was considering suggesting DOD check as well.
I anticipate push back if I suggested pulling a new CR if its 32 days old.
If CR is over 30 days old run a DOD check prior to closing and retain cert in file. We will stick to pulling a new CR if its over 120 days old, our bank policy.

I have been told, but have nothing concrete to rely on....that an inquiry has almost no affect on the score. It is tons of multiple inquiries that impact the score....such as a consumer applying for a bunch of different credit cards in a 180 day period.

Always hate creating unnecessary work if it isn't absolutely necessary to check if the credit report is over 30 days. The interpretive rule isn't entirely clear on the topic, but it does seem to indicate that lenders may rely on information obtained up to the time the loan is made to enjoy the safer harbor.

Absolutely do not agree.

I'm not going to recommend we change the use of credit reports if they are within acceptable time frames according to our loan policy when it is so easy to use the DOD website to verify status. It would be a whole other issue if we could only access that information using a credit report.

In fact, if I even recommended pulling another credit report if the customer comes back in that short of a time frame, I would get voted off the island!!!

I'm not even adding the check to our credit reports; we'll be going to the DOD website for every one. Isn't a hardship IMO.

We'll be using the DOD website as well.

We're going with choice of DoD or credit report at application, and if the loan doesn't close within 30 days they need to pull a new DoD search. I really don't see this being a big deal as it will probably only impact a very small handful of lot loans.

Right....because I heard it from a credit reporting agency.

Regardless of whether or not that is true....if a consumer wants a loan, it isn't our job to protect the consumer from too many inquiries. The consumer is the one driving the bus. Consumers need to understand that if they apply for a loan, a bank is going to check credit and that the score can change dramatically over a short period of time. Relying on old credit reports is just plain dangerous.

I heard this from a CRA, too. They assured us that through some analytical technique, all inquiries from various car dealerships, for example, would count as one inquiry versus the actual number, since the customer is obviously shopping for one loan.

That said, we will continue to pull a credit report with the application, but a re-check of military status will not initiate a new report.

I actually agree on both sides of the issue....yes, numerous pulls hurts the score, but if you (as a consumer) are concerned about that, i guess quit applying for so many loans...that's the way it goes.

I think a lot of that comes from unwary consumers who are bombarded with credit offers every time they try to check out at a retail store. "Would you like to apply for our card? You can save 10% on today's purchase!" Usually, the savings is granted even if the credit isn't approved. I think generally, consumers don't realize their credit score will be affected. Some end up with too many cards also affecting getting a loan. Of credit reports I have looked at, 48 inquiries in 180 days holds the record.

We will be using the DOD website at application to verify status and for lot loan will verify again when issuing the Closing Disclosure.

I'm not confident in the bureaus identifying dependents.


On a side note - why is the DOD document with ONE WORD determining whether MLA applies in a smaller more illegible font than the rest of the document.

Seems they should apply some the "12 point bolded font" to the government documents as well.

^^^THIS^^^ I TOTALLY agree. It took a few minutes to find it on the first pull! So silly that the most important part seems like an afterthought...

The Credit Bureau gets its data from the DOD database. Why would it miss a dependent if your input is correct?

I have a different scenario. We have a loan that is consumer purpose that is available online. The decision is made using account history or a credit report. It's an automated process. I contend that this is a covered product. However, there’s a debate going on with a vendor: They are saying that as long as a loan “falls below the 36% rate cap, you don’t have to do covered borrower lookups.”

According to the regulation, there are very specific exceptions to the rule. If a loan is consumer purpose, and is not any of the exceptions noted in i-iv, wouldn’t you have to verify if an applicant is a covered borrower before you could determine if MLA applied?

If the loan is under 36% certain remedies don't apply, but other requirements still do such as disclosures, correct? If the person is not a covered borrower the disclosures are moot. The MLA is moot. And you are not required to do a covered borrower look up, but to get a safe harbor protection you do and it needs to be 1 of 2 methods.

I would maintain that if the bank has an employee, single, not a dependent and that person applies for a laon, no check is necessary and the bank doesn't need a safe harbor. But those instances will be rare.

Thanks Andy. I guess that's my concern: if they are applying online, I have no idea if they are a covered borrower or not! The vendor is saying because those loans are under 36% the rules don't apply. I hadn't seen anything posted regarding that. That was my concern.

We get applications and make the loan on the same day. We are verifying the status using the DOD website. So if we receive an application today in the morning, get the status check and close the loan all on the same day, do we have to show proof of the time the customer signed the loan docs in order to determine that the status check was done before the customer signed the loan docs? The status check has a time stamp. the only proof we will have is the time stamp of when the loan funded (time of the deposit or cashiers check). Will proof of the closing be required for this scenario? or will we have to start setting up closings for the next day?

thanks,

That isn't required and I would feel safe in saying procedurally the borrower check is done before the loan is closed.

Now, the first time you close a loan assuming they are not covered and your file has the verification showing they are, your procedures are discredited. Hopefully that won't happen. But I would not create a rule to time and date stamp everything. In my experience that doesn't work especially if your loan docs are printed, then the database check is done, then the loan is closed because all is good. Unless you're E-SIGN'g docs "when" it is signed is hard to remember to do.

Great. Thank You.

Andy, can you give me a citation for the "under 36% certain remedies don't apply"? I'm still having trouble with this. Thanks!

I think this question fits this thread, if not please move:

I have a denial for a lot loan that was denied within three days and the officer forgot to get the military status from the database until after the loan was denied. Is there a problem with that since the customer was not in military service?

I think the consensus previously was that you have to check anywhere from application prior to closing on the loan. So, I'm confused why it would be pulled for a denied loan at all. Unless you are just trying to show that YOUR process is to pull AT application. If that's your process, I would either tweak my process to be more lenient about when it is pulled, or make sure that the check IS being done at application. The APR and documentation showing you read them their APR and payment information would be the only thing affected, so I'm not sure what pulling it for a denied loan would do for you.

Our process is to pull prior to loan closing. We would pull credit on a RE loan, but we don't pay for the status check add on. I want the process as consistent as possible and we don't pull new credit or take a paper app on all new consumer loan requests, so the DOD check prior to closing is our process. (For our lot loans, we are doing it when we do the closing disclosure.)

But, that's just us. I am in no way a guru or an expert and love the feedback here. I was just here, re-reading this thread due to a vendor that posted a compliance update that hinted the status check should be done at application, and they would look at missing status checks on covered loan application that were denied as a problem with your process.

Poor choice of words on my part that certain remedies don'tapply. Certain requirements don't apply, but 36% is the only requirement. That was my point.

On the point of DoD checks on denied/withdrawn apps - is this referring to the Bankers Compliance Consulting email? I think the point is, does your policy say you will check all app and when? If so, is it worded such to allow for denials/withdrawals?

If there is no consummation, I see no MLA violation if it isn't checked, but you could inadvertently violate your policy and SOP.

Bringing this older thread back. Is it still understood that the status check is only good for 30 days? Or, if the status is checked and documented at the time of application, is it still valid if the loan doesn't fund until past 30 days?

Bringing this back to life again and I hope someone can help. Has there ever been any official interpretation to 232.5(b)(3)?

If you do an MLA search at the time of application and it takes the loan more than 30 days to close (or, alternatively, 60 days), do we need to perform another search? I read (i), (ii), and (iii) to all say different things.

3(i) seems to indicate that, yes, we need to (if "initiates" means consummates).

3(ii) seems to indicate that, no, we do not as long as we do it at the time of application.

3(iii) seems to indicate that we have up to sixty 60 days between application and consummation to use it. (Although someone previously mentioned this only covers prescreened offers, as indicated in the preamble).

We just had an instance where there was a relatively significant amount of time between application and consummation for a covered loan (it was due to the borrower) and we have never needed to consider this before.

Any help is much appreciated!

The DoD did indeed issue official interpretations, in the form of Q&As. Here is the Federal Register link for them.

Check out Q&A #20:

20. To qualify for the optional safe harbor, must the creditor determine the consumer's covered borrower status simultaneously with the consumer's submission of an application for consumer credit or exactly 30 days prior?

Answer:

No. Section 232.5(b)(3)(i) and (ii) permits the creditor to qualify for the safe harbor when it makes a timely determination regarding the status of a consumer at the time the consumer either initiates the transaction or submits an application to establish an account, or anytime during a 30-day period of time prior to such action. Therefore, a creditor qualifies for the safe harbor under 232.5(b) when the qualified covered borrower check that the creditor relies on is conducted at the time a consumer initiates a credit transaction or applies to establish an account, or up to 30 days prior to the action taken by the consumer. Similarly, the timing provisions in 232.5(b)(3)(i) and (ii) permit a creditor to qualify for the safe harbor when it conducts a qualified covered borrower check simultaneously with the initiation of the transaction or submission of an application by the consumer or during the course of the creditor's processing of that application for consumer credit.

Did that clear it right up for ya? Obviously, the DoD is not in the business of banking. They use befuddling phrases that leave those of us in the industry wondering what the heck they really mean. 30 days prior to applying to establish an account? Huh? Are we supposed to have a crystal ball that divines one's desire to apply, and check them 30 days before that? "Application / Applies" here is an unfortunate word choice, and IMHO never should have been used. The DoD tries to further explain it in Q&A #20, but their efforts were... if I may be so blunt... akin to polishing a turd. (What can I say, my husband was a sailor. )

I truly believe the difference between (i) and (ii) is the type of debt obligation the servicemember is getting into: (i) a loan, or (ii) a line of credit. A loan "transaction" creates immediate debt, while a line of credit establishes an account for future debt. The DoD is trying to indicate that either kind of indebtedness counts. Bottom line concept: before a creditor indebts a servicemember (either immediately on a loan transaction or in the future under a credit account agreement), that creditor had better darn well know if the obligor is a covered borrower or not. The safeharbor simply defines how long such knowledge is good for. The MLA check is guaranteed-fresh for 30 days before the obligation is made.

I suggest boiling it down to this: How badly do you want the safe harbor? There is no requirement to achieve it - you are free to identify covered borrowers as you like. However, if you want the safe harbor, treat the MLA search as only having a shelf life of 30 days. If more than 30 days has gone by before you establish the loan or credit line, consider it stale and do a new one.

Thank you, Rebekah. Clear as mud is right!

But thank you for the link. And also thank you for some of the clarity re: the intention based on loans and credit cards.

I'm thinking of an exam. If we have the DOD check, are the examiners really going to dig that deep? The exam manuals go into even less detail and are more ambiguous regarding what the regulators are testing (they merely make reference to "in accordance with 232.5").

And, if worse comes to worse, I think I'm okay with asking for forgiveness that we used the 60-day timeframe outlined in (iii) because there was less than 60 days between us approving the loan (we processed a firm offer of credit?) and the consumer consummating (responding to our offer?) the transaction. It's weak, but it's what I have to work with!

Thanks again!