1. Don’t make any statement on the bank premises or otherwise that would discourage a person requesting credit.
2. If the application is written, be sure to use forms that are in compliance with ECOA, or use FRB model forms.
3. Don’t ask prohibited information:
A. Don’t request marital status unless permitted;
B. Don’t ask about spouse or former spouse unless permitted;
C. Don’t inquire as to sex, except where required for monitoring information;
D. Don’t ask about receipt of alimony, child support, or maintenance payments unless you point out that an answer is optional;
E. Don’t inquire as to race or national origin unless it is for monitoring purposes;
F. Don’t inquire as to their color or religion.
4. Once you have begun to evaluate the possible extension of credit, do not consider:
A. Race;
B. Color;
C. Religion;
D. National origin except as it may relate to an applicant’s creditworthiness;
E. Sex;
F. Marital status, except as it may relate to a creditor’s rights;
G. Age, except if applicant is a minor or it is pertinent to creditworthiness;
H. Public assistance program income, to the extent it is not reliable, but do appraise probable continuance;
I. Assumptions of possible child-bearing or rearing;
J. Existence of telephone in applicant’s name, but do consider whether one exists at the applicant’s residence.
5. Do consider:
A. Part-time income, pensions or retirement benefits, but evaluate their likely continuance;
B. Alimony, child support and separate maintenance payments, but evaluate their likely continuance;
C. Any credit history that the applicant requests that you examine.
6. Let applicant know of your decision on the credit request.
A. If action is favorable:
1. Allow applicant to place the account under various legal name combinations;
2. Don’t insist upon a joint account if the individual is creditworthy.
B. If action denies credit, this is adverse action and a notice must be sent within 30 days to applicant explaining refusal. These notices are available in normal commercial channels. Notice copy must be retained by creditor for 25 months. (For rules regarding denials for “business credit”, see “Regulation B [Equal Credit Opportunity Act]: Business, Commercial or Agricultural Credit” article in this section.)
C. If action is a counter-offer:
1. If applicant accepts, follow same procedures used in #6A;
2. Similarly, if action is not accepted, follow #6B procedure.
7. Retain all application records for 25 months.
8. Common Questions:
A. Spousal Signatures
Example: Husband and wife with the application filed by husband. All real property is jointly owned. Credit determination: husband is creditworthy taking into consideration his share of the jointly owned property.
Action: Only the husband can be required to sign the note. The wife can be required to join in the real estate mortgage.
Reason: Nebraska Law provides that the security follows the debt. When real estate is held in joint tenancy, the spouse may properly be required to sign the mortgage to guarantee the security performance. If the applicant is otherwise
creditworthy, the spouse cannot be required to sign the debt instrument (note) itself.
B. Guarantors or Cosigners
Example 1: Where the bank is making a loan to an individual and that person alone is not creditworthy enough to meet the bank’s underwriting requirements.
Example 2: Where the bank is making a loan to a corporation and in doing so, requires guarantees from each of the shareholders.
Action: The bank may require guarantors or cosigners, but may not require the debtor’s spouses to be cosigners or guarantors.
Reason: Regulation B requires asking the individual debtor or corporate shareholders if they are all aware of another person who can guarantee or cosign the debt instrument. Should the debtors suggest the cosigners be the spouses, then the use of spouses as guarantors or cosigners is acceptable. (See, Section 207.7(d)(1-6) of Regulation B).
C. Discouraging Applications
Example: Customer inquires about an automobile loan to acquire a late model luxury car. She does not speak English very well and the address she gives indicates she rents an apartment.
Action: The loan officer should ensure that the prospective applicant is provided equivalent information and service, including encouragement to make application.
Reason: Reg. B, Section 202.5(a) states that “a creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application” (See, D. below).
D. Prior Bankruptcy
Question: May the bank use bankruptcy as a reason to deny credit without violating Regulation B?
Answer: Yes. Regulation B prohibits discrimination in credit decisions on a “prohibited basis” (i.e., race, color, religion, national origin, sex, marital status, age, income derived from public assistance programs or good faith exercise of rights under the Consumer Credit Protection Act). Federal and state laws providing bankruptcy rights are not part of the Consumer Credit Protection Act, as some persons may assume. Thus, banks may deny credit on the basis of the applicant’s bankruptcy.
E. Immigration Status
Question: May the bank inquire about or base a credit decision on the applicant’s immigration status?
Answer: Yes. Reg. B, Section 202.5(d)(5) allows a creditor to ask about an applicant’s permanent residence and immigration status. In addition, Section 202.6(b)(7) states that a creditor may consider whether an applicant is a permanent resident of the United States, the applicant’s immigration status, and any additional information that is necessary to assess the creditor’s rights and remedies regarding repayment. Note that Reg. B commentary language warns that a lender may not arbitrarily deny credit to some aliens and not others, merely on the grounds that the ones denied are not citizens. Although the practice of denying credit to all noncitizens may not be prohibited under Reg. B, it is probably illegal under other Federal laws, particularly the Civil Rights Act of 1870, 42 U.S.C. 1981.