Q.Executive management would like to institute an insurance policy that if credit cards applicant is denied due to a credit freeze you would be unable to ever reapply for credit using the bank. Can the bank do this?
A. No. The opportunity to place a credit freeze is really a right granted to consumers underneath the FCRA, that is area of the Credit Protection Act.
Regulation B (Equal Credit Opportunity Act) prohibits discrimination on any prohibited basis, and §1002.2(z) includes within the definition of prohibited basis the fact that the applicant \”has in good faith exercised any right under the Credit Protection Act or any state regulations upon which an exemption continues to be granted by the Bureau.\”
Thus, the financial institution may deny the application initially because of the freeze and permit the consumer to lift the freeze and re-apply. However, if the bank denies someone credit because the consumer placed a freeze, rather than permits the applicant to reapply, it has effectively violated Regulation B.
Q. My bank has a question associated with employment rules underneath the Fair Credit Reporting Act. When denying an application for employment with different consumer report, my bank provides an adverse action notice as the FCRA requires. Must that notice include information past the reasons for denial?
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A. The reasons for denial are not required to be contained in the adverse action notice. However, remember that the use of either a consumer report from a consumer reporting agency or perhaps an investigative consumer report triggers multiple disclosure requirements underneath the FCRA. (§604(b))
Before rejecting a job application, denying a campaign or taking every other adverse employment action based on information in a consumer report, the financial institution must give the applicant or employee a duplicate from the applicant’s consumer report and a copy of A Summary of Your Rights Underneath the Fair Credit rating Act.
Once a derogatory decision is created, the financial institution must provide the final adverse action notice which includes: the name and contact information of the consumer reporting agency or 3rd party that provided the consumer report or even the background check; a statement the consumer reporting agency did not make the adverse employment decision and for that reason cannot provide any causes of the adverse action; and notification that the applicant or employee is entitled to get a free copy from the criminal record check or consumer report on which the adverse action was based inside a 60-day period.
Q. My question concerns the April 2022 amendment towards the Ability-to-Repay/Qualified Mortgage rule under Regulation Z. The April final rule states that for applications received on or after March 1, 2022, but before the required compliance date of Oct. 1, 2022, banks that decide to originate general QM loans have the choice of adhering to either the revised, price-based General QM loan definition or even the original, total monthly-debt-to-total-monthly-income-based General QM loan definition. Must a bank determine which definition it uses and stick with just that one definition for those loan qualifications, or is a creditor free to use both definitions as it chooses to qualify a loan?
A. It seems that banks may make that decision on a loan-by-loan basis. New comment 1 to §1026.43(e)(2) clarifies this point and it is summarized within the Supplementary Information towards the April final rule:
Regarding the comment asking the Bureau to explain that the original, DTI-based General QM loan definition and also the revised, priced-based General QM loan definition can be found on a loan-by-loan basis, the Bureau notes that, as new comment 43(e)(2)-1 states, both original, DTI-based General QM loan definition and the revised, price-based General QM loan definition are for sale to creditors for transactions that the creditor receives a credit card applicatoin on or after March 1, 2022, but just before October 1, 2022.
Q. My bank is implementing a worker benefit that provides a discounted rate of interest or discounted fees on home loans. May a worker deemed an insider under Regulation O (for example executive officers) take part in this program?
A. Yes. Section 215.4(a)(2)(i) of Regulation O (rule regarding loans to executive officers, directors, or principal shareholders) clarifies the regulation does not prohibit loans which are \”widely open to employees,\” presuming it doesn't otherwise give preference for an insider. Note, however, that other provisions can always apply, such as the §215.5 restrictions around the loans amounts that executive officers may borrow.
Answers are provided by Leslie Callaway, CRCM, CAFP, CAMS, senior director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst, ABA Regulatory Policy and Compliance. Answers do not provide, nor could they be meant to substitute for, professional legal advice. All answers with this column were provided in July 2022 and were current by that date.
