We have a indirect dealer that uses a different application than the Bank. It is the application used by the software RouteOne The application asks for a relationship for co-borrowers. We always take caution when asking this question. Is it legal for the application to ask for relationship to the borrower?

What is the purpose for asking this question? The question is not a problem per se, it is what will be done with the answers.

I too am curious as to the reason for asking this question. Since this is in the New York forum, is this a state specific question?

For me, I would be concerned that you are indirectly requesting the applicant's marital status and could potentially violate 1002.5(d)(1).

"(1) Marital status. If an applicant applies for individual unsecured credit, a creditor shall not inquire about the applicant's marital status unless the applicant resides in a community property state or is relying on property located in such a state as a basis for repayment of the credit requested. If an application is for other than individual unsecured credit, a creditor may inquire about the applicant's marital status, but shall use only the terms married, unmarried, and separated. A creditor may explain that the category unmarried includes single, divorced, and widowed persons."

It is not our application, it is the Dealer's Software(RouteOne) application that is asking for the relationship. Our bank doesn't have this as question on our own applications as we follow ECOA. So I have no idea why RouteOne has this on their application other than maybe in other states it matters.

We have found this during audit, we know our policy and procedure is not to take this relationship into consideration.

Tell the dealer to get an explanation from RouteOne or refuse to accept the applications.

To me, the concern here is that the Reg B prohibition relates to requests of information. My concern is that your indirect dealer is, in a round about way, asking for something prohibited by Reg B. It sounds like your auditors are on top of this, so that is good. However, I agree with Randy that you should work to have them change this as you not considering the information doesn't make this problem go away, IMHO, due to the fact that the information was already requested and Reg B was likely violated.

Supposedly the question is asked to help detect straw buyers. However, that doesn't override the Reg B risk.