I. CREDIT APPLICATION
A. The first step of every loan will be the loan inquiry and application. The credit application is the lender’s primary tool for obtaining the proper information from which to promptly and easily check pertinent facts about a prospective customer in order to make a good credit decision.
B. The credit application need not be a formal, written application. However, it is recommended that a written application be taken. If no written application is taken, a memorandum of all the pertinent information obtained during the oral application should be made and placed in the loan file. A written credit application will serve as a source of information that you will be required to keep according to federal regulation. The formal application or file memorandum if properly prepared, will insure that you will be in compliance with Equal Credit Opportunity laws (Regulation B).
II. EVALUATION OF CREDIT APPLICATION
The facts disclosed by a credit application will give the creditor all the information necessary to reach a proper credit decision. Credit information should be verified prior to reaching the credit decision. There are certain areas that are quite important in evaluating a credit application:
A. Age - The minimum legal age in Nebraska to be able to contract is 18. There is no maximum age governing contractual liability. A cosigner or guarantor may be required for an underage applicant. Regulation B cautions should be observed.
B. Income - If the applicant is applying for a separate or individual account, only his or her income may be considered. In the event of joint credit, the income of both applicants will be considered. (See Regulation B)
C. Dependents
D. Home Ownership and Length of Residence
E. Length of Employment
F. Accounts and Other Debts Owed
G. Signature - When the customer signs the credit application, the applicant is certifying that all the information on the credit application is true.
It is also recommended when doing your credit analysis that you keep in mind the “3 C’s” – character, capacity and capital.
III. CREDIT DECISION
Once the credit application has been completed and the information contained therein has been verified, a credit decision must be rendered within 30 days of receiving a completed application.
A. Adverse Action
If the decision is to decline the loan, or grant less than the amount requested, or to take any action other than that requested, the applicant must be sent a written notice of adverse action under Regulation B. This is mandatory in all cases of adverse action and a written notice must be delivered in person or mailed within 30 days of taking the application. This written notice must contain: (a) the action taken; (b) the principal reason(s) for the activity; and (c) the Equal Credit Opportunity Act Notice.
B. Approval
If the decision is to complete the loan request, established loan procedures should be followed depending upon the type of loan made. Different types of direct loans require different steps and procedures. Examples of some of those types of direct loans are contained in this section of the Handbook.
CAUTION: Care must be taken not to include extraneous statements in the note form or in the security agreement form that might mislead the debtor or cause the debtor to be misled. In this connection, we recommend the following language regarding description of security interest in consumer goods:
“The Security Agreement will secure future and other indebtedness.”
In the rare event that it is necessary to cover after-acquired property, it is important that it be accomplished in strict compliance with section 9-204(b) of the Uniform Commercial Code. In such a case, we would suggest that the following language be inserted:
“The Security Agreement will secure future and other indebtedness and will cover after-acquired property in compliance with the ten-day limitation on personal property set forth in section 9-204(b) of the Nebraska Uniform Commercial Code.”
In every case, approval by your own counsel should be obtained before proceeding.