All in Adverse Action

Denial Reasons of Excessive Obligations & Insufficient Income

This Compliance Clip (video) discusses the difference between two denial reasons found on most adverse action notices: 1) Excessive Obligations in Relationship to Income and 2) Insufficient Income for the Amount of Credit Requested. Adam discusses why most denial forms have these two different, but distinct debt-to-income (DTI) options and explains the best practice for when to use each reason - which might not be what you think.

Using a Credit Score Disclosure in Lieu of the Adverse Action Notice

This Compliance Clip (video) answers the question of whether the FCRA pieces of the AA Notice must be completed every time, or if creditors can combine certain FCRA disclosures with the AA Notice. Adam attempts a new approach to adding a bit of humor to a mundane compliance topic and fails terribly. He makes a promise to never attempt this approach again (unless he is asked).

Over the years, I have seen many financial institutions struggle with the adverse action notice requirements under Regulation B, especially in regards to what denial reasons should be listed on the adverse action notice.  This is particularly true when an applicant is denied for a reason relating to income and the applicant’s debt-to-income (DTI) ratio as most adverse action notice vendors provide two similar, but different, options relating to income: excessive obligations in relation to income and insufficient income for the amount of credit requested.  

When a financial institution receives a request for a loan, they are required to respond to that applicant within a certain amount of time to advise them of their credit decision.  That time, however, can vary based on the specific situation and/or financial institution, which has left many compliance professionals confused as to what actually is required. Therefore, let’s take a quick look at the rules and break down what they mean.

The SAFE Act requires that each registered Mortgage Loan Officer (MLO) provide their unique identifier (NMLS #) to applicants according to certain requirements.  For example, the NMLS number must be provided to the customer upon request, before acting as a mortgage loan originator, and through the MLO’s initial written communication with a consumer.  For this reason, most financial institutions have established procedures to include the NMLS number on...