ECOA Incomplete Application Notice

An incomplete application can create unique challenges for a financial institution.  For example, many financial institutions have a difficult time just understanding what an incomplete application really is.

To understand what an incomplete application is, we must first understand how Reg B defines a completed application.  

Completed Application VS. Incomplete Application

Under Regulation B, a completed application is an application in which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested.  An incomplete application, however, is not as clearly defined in Regulation B.  That said, there are generally two types of incomplete applications: those that happen before a completed application is received and those that happen after there is a completed application.

The first type of an incomplete application occurs before a completed application is received.  This occurs when an applicant provides an application but does not provide all of the information normally needed to underwrite the loan - meaning that it is not considered a "completed" application under Regulation B.  The missing information, for example, could be information on a mortgage application such as a social security number in order to obtain a credit report.  In this case, the bank has received an incomplete application.  The bottom line with this type of application is that it does not meet the definition of a "completed application" under Regulation B.

The second type of an incomplete application occurs after a "completed application is received, but the bank is still waiting on information from the applicant to make a final credit decision.  You see, once a “completed application” is received, Regulation B has a “clock” that starts where the creditor must then notify the applicant of a credit decision within 30 days of the completed application.   Often times, a bank or credit union may give a conditional approval to the applicant which satisfies the 30 day clock under Regulation B.  This conditional approval, however, requires verification of the information used in the initial (conditional) approval.  At this point, if a borrower does not cooperate and provide you with the verification information needed to give the final approval, you still have an incomplete application under Regulation B.

Put another way, an incomplete application includes instances when you have received a completed application (under your Reg B definition) but are missing key pieces of information in order to make your final credit decision.  The missing information will often be verification information that will need to come from the applicant, such as tax returns or W2s.

How to Treat an Incomplete Application

When you have an incomplete application, Regulation B doesn’t let you just give up on the applicant and call the loan withdrawn.  It also doesn't let the incomplete application just go away.  In fact, it only really gives you three options - which must be done within 30 days of receiving the application - for proceeding with the incomplete application:

  1. Approve the loan

  2. Deny the loan

  3. Provide an alternate notice of incompleteness

As you are waiting on documentation to approve the loan, option one is out.  Option two is an easy way out, but can be rather harsh, especially if the applicant is well qualified.  That said, denying the loan for incompleteness is a viable option for an incomplete application.

The final option is to provide the alternative notice of incompleteness, in accordance to the requirements found in Regulation B.  This option allows you to give the applicant more time to provide the needed information, and then - this is key - if the applicant does not provide the needed information, you have no further requirements.  Basically, if you send the notice of incompleteness and the applicant does not respond, you can consider it withdrawn and have no obligation to send a denial notice.

Regardless of what method is chosen, it is important to keep in mind that 1002.9(c) of Regulation B requires action within 30 days after receiving an incomplete application: 

(c) Incomplete applications. (1) Notice alternatives. Within 30 days after receiving an application that is incomplete regarding matters that an applicant can complete, the creditor shall notify the applicant either:

(i) Of action taken, in accordance with paragraph (a) of this section; or

(ii) Of the incompleteness, in accordance with paragraph (c)(2) of this section.

Contents of the Notice of Incompleteness

Regulation B has several requirements that a financial institution must comply with when sending the notice of incompleteness.  First, the notice must be written.  It then must specify the needed information and provide a reasonable period of time for the applicant to provide the missing information.  Finally, the notice must tell the applicant that failure to provide the information will result in no further consideration of their application.

If the applicant fails to respond within the designated time period, the financial institution has no further notification requirements, meaning that it does not need to send an adverse action notice.  If an applicant responds after the expiration of the designated time found in the notice of incompleteness, the creditor is permitted to require a new application.  If the information is supplied by the applicant within the required period of time, the creditor must continue processing the application and provide the final credit decision.

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