Are there any Reg B (specifically Adverse Action) issues if the business is “turned-down” for a card (because of $ exposure to the bank)?

To explain: A business applies for a debit card. Various items are considered (very similar to the underwriting of a loan). Due to how the card works, there is some, limited, exposure to the bank (i.e., how the card is used (with or without a PIN) and when the debiting transaction actually posts to the bank). The bank may not be willing to risk such exposure with some business customers; therefore, turns-down the business dr. card request.

Or am I “reading” too much into this issue…

Bumping this up…

This has become an issue here:

One argument is - because the customer is evaluated using credit standards and may be refused a card based on those standards – the safest action is to provide the C-8 AA notice.

The other argument is – the business customer is not applying for credit, simply a business check card. No type of adverse notice is needed.

I’m hoping someone in this forum would express an opinion, please.

Yes, here's an opinion!

A debit card is only a loan product if you handle it as a loan product within your bank. Some banks do and some banks do not. We, for example, give out debit cards to whomever qualifies for a new checking account, personal or business. Within my prior experience, the Debit Card "product" was on the credit side of the bank, so an application needed to be completed and go through the cycle just like a credit card, resulting in loan regulations coming into play when a decline comes about.

The key question is whether there is an application for credit. If the customer is not applying for a credit product, you do not have to provide Regulation B AA notices.

In general, a debit card is not a credit product (never mind that it has its origins in a credit milieu). It does not (directly) access a credit vehicle. Therefore, there is no need to do Reg. B AA notice.

Think of it this way. A credit card is only a method for accessing a credit account. A debit card is a method for accessing a deposit account. When a customer applies for a "credit card" he is really applying for a revolving line of credit. If you turn him down, you're declining an application for a credit account.

But the customer applying for a debit card is not applying for an account at all. He's asking for the card as another way to access what he already has -- a deposit account. The account exists without the card (where a credit card account does not exist without the credit card).

The customer is not applying for credit, however the card approval is based on credit standards. That is, a loan officer will evaluate the card request and if the bank is willing to risk any, some, or no exposure will determine if the business gets the card.

Thank you all for the comments.

That is not in dispute here. But remember, please, that there must be an application for credit before Regulation B's adverse action requirements kick in. The regulation does not take into account whether you evaluate a debit card application using credit-granting methodology. And I agree with the premise that some credit review is needed before issuing debit cards.

One other consideration - is the card linked to an overdraft LOC?

Sounds like good advice to me!

Actually, a debit card is simply another form of a check. When checks are ordered, you surely don't run a credit report. Of course, debit cards have a built in risk that checks do not have, e.g. off-line transactions, delayed ATM/POS posts, so I can understand why some banks attempt to reduce the risk by going through a credit investigation routine. We decided that the risk is too low and the expense too high, but that could change some day.

The original post asked only about Reg B. What about the FCRA adverse action notice?

On what basis would you do a FCRA adverse action notice?

FCRA only applies to consumers and consumer credit reports. And of course, you wouldn't pull a credit report on a consumer here, would you?

If you intend to pull credit on principals of the business, you need to get approval from them first. Then, if you pull their credit . . . .

John,

I've jus been asked to review an Business Debit Card application. We intend to pull credit bureau reports on the principals/owners of the business. We obtain permission in the signature line area of the application that discusses the bank can obtain credit information from any source. Do we have to send an AA notice if we deny the business debit card based on something in the "principals/owners" personal credit file? My guess is yes.
I need you to complete the sentence "Then if you pull their credit.....", because I think that is what you were going to write??????

To start with, because Regulation B won't apply, let's not decide we have to comply with Reg. B AA notice rules. But the FCRA does require that, if adverse action is taken pursuant to something in a consumer's credit file, we need to provide the FCRA notice to that consumer.