Adverse Action Notices and Co-Applicants

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Question:

<a href="http://www.bankersonline.com/articles/v05n14/v05n14a2.html">There is an article by Lucy Griffin on FCRA, ECOA, and Adverse Action Notices.</a>. In talking to the FDIC, who referred me to the FRB issuance dated March 2003, Reg B now states that we do not need to send a separate adverse action notice to the co-applicant if his/her consumer credit report was used to deny a joint credit application. The FRB states that when a person agrees to be a co-applicant, there is a general understanding that information will be shared between the applicants. Therefore, we do not need to inform the primary applicant that there is an "ineligible co-applicant" and send a separate notice. The FDIC is asking me to find out what information you are referring to in the above article by Lucy Griffin.

Answer:

This is a tough issue because adverse action notices are required both by the Equal Credit Opportunity Act and its Regulation B and by the Fair Credit Reporting Act. The FRB has taken the reasonable and realistic position that you can expect co-applicants to share information, including adverse action notices. The FRB looks at its rules closely to find ways to reduce regulatory burden or to keep it from mushrooming. When they issued this, it was a huge form of relief.

On the other side of the issue, we have the Federal Trade Commission which has lead interpretive authority for FCRA. FTC staff has taken the position that the adverse action notification rights apply to the consumer whose report was used. When two consumers co-apply, the FTC still says that each consumer must get a notice. This is a pretty stiff interpretation in terms of burden on creditors.

While the FRB cannot change the FTC's position, their construction of the issue -- that co-applicants can be expected to share information -- is reasonable. If your examiner follows the FRB's guidance with respect to FCRA as well as ECOA, then you are probably okay giving one notice. I would recommend to anyone that, before deciding to issue only one FCRA notice, you run the idea past your examiner. That should prevent your being surprised with a violation of FCRA for following the FRB's rule on ECOA.

First published on BankersOnline.com 06/21/04