Our bank policy defines a commercial loan application as when 8 specific documents or pieces of information has been obtained, including a credit report. If a customer has inquired about a loan and the commercial loan officer is working them on gathering the information for an application, but can tell by the financials that the customer won't qualify, do we need to send an adverse action notice (if gross annual revenues are under $1MM) even though we don't have all 8 pieces of information that define an application?

Sounds like you are prescreening rather than having an application process. You are talking about what you deem a complete application and not an application for credit. Just like TRID, you might not have all 6 pieces of information to trigger an LE, but that does not mean you do not have an application that triggers Regulation B.

There's several threads about the difference between an inquiry/prequalification and an application and how much leeway an institution has in setting that up. Regardless of that though, the answer to your question is going to be yes. If you are telling the customer they won't qualify after getting financials, then it's an application and you need an AAN.

1002..2(f) - 3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under § 1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks. (See comment 9-5 for further discussion of prequalification requests; see comment 2(f)-5 for a discussion of preapproval requests.)

Randy and Inherent_Risk (who provided you with the citation on this) are correct. To say it another way: you had enough information to deny them, so you must comply with the adverse action notification requirements of Regulation B.

Now technically, for a business with gross revenues of $1 million or less, you must notify them of the denial in accordance with 1002.9(a)(3)(i), which states that the "statement of the action taken may be given orally or in writing" and you could have previously provided a disclosure of the applicant's right to a statement of the denial reasons at application.

In other words, you must notify them of the adverse action, but it doesn't necessarily need to be in writing for businesses with gross revenues of $1 million or less.

Here is the full citation for reference:
(3) Notification to business credit applicants. For business credit, a creditor shall comply with the notification requirements of this section in the following manner:

(i) With regard to a business that had gross revenues of $1 million or less in its preceding fiscal year (other than an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit), a creditor shall comply with paragraphs (a)(1) and (2) of this section, except that:

(A) The statement of the action taken may be given orally or in writing, when adverse action is taken;

(B) Disclosure of an applicant's right to a statement of reasons may be given at the time of application, instead of when adverse action is taken, provided the disclosure contains the information required by paragraph (a)(2)(ii) of this section and the ECOA notice specified in paragraph (b)(1) of this section;

(C) For an application made entirely by telephone, a creditor satisfies the requirements of paragraph (a)(3)(i) of this section by an oral statement of the action taken and of the applicant's right to a statement of reasons for adverse action.

An application for ECOA notification purposes is the creditor getting enough information and letting the customer know. It could be as short as a simple conversation in the lobby, such as:

Customer – I need to borrow $10,000. Do you make home improvement loans?
LO – Yes, where do you live?
Customer – Beacon Condominium.
LO – Oh sorry, we don’t lend there, they’re not approved.

Customer gave creditor enough information to make a decision. Creditor declined and conveyed the decision to the customer. AAN required

Just for fun.

Customer – I need to borrow $10,000. Do you make home improvement loans?
LO – Yes, where do you live?
Customer – Beacon Condominium.
LO – We generally don't take condos for collateral, but if you want to apply, we can review your application.
Customer - Nah. I live in a condo.

AAN required?

I would say no.

Thank you everyone for your assistance.

IMHO, I would also say no.

" Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks."

The LO stated the "we generally" underwriting guidelines but encouraged the customer to apply. (Some could argue that (s)he was trying to dissuade the customer, but finished the sentence encouraging them to apply.)
The customer decided not to apply - their decision - not the lender.

Inherent_Risk, this is a perfect case study example that I like to avoid when working with lenders.

On one side, the lender didn't say they can't do the loan. They explained what they generally do and encouraged the applicant to apply.

On the other side, the lender did (at least slightly) discourage the applicant from applying by saying they generally don't take condos as collateral. When the applicant said "I live in a condo," this can be seen as a direct correlation to the statement that the bank doesn't like condos as collateral, so the applicant may have believed they would be denied and, therefore, didn't want to waste anyone's time.

So for me, I would likely error on the side of providing the AA notice. Is it "required?" Possibly not. But if we provide the notice when it technically wasn't required, we are probably in a better situation than if we didn't provide it and an examiner says we should have provided it.

Nice job on the "just for fun" discussion on a Thursday afternoon.