TCA often helps financial institutions review commercial loans for Regulation B compliance, which includes handling adverse action loan applications. During these reviews, TCA sees numerous mistakes, such as:
- No written procedures,
- Inconsistent practices,
- Lack of recording of the adverse action taken and the action date taken of the loan request
- Inadequate recordkeeping.
- New Rule, New Approach
- With the 1071 Small Business Data Collection requirement comes a mandate for Commercial Lenders to modify their loan processes to comply with the new rule.
- It will require institutions to report the action taken on a credit request for each small business loan request, including adverse actions. To ensure consistent, accurate reporting on the LAR, it’s essential to include the process, methodology, and workflow associated with documenting adverse actions.
- Adverse Action Reporting Definitions
- Below are several adverse actions to become familiar with and to consider in your procedures.
- Approved Not Accepted is reported when the institution approves the application but the applicant or the party that initially received the reportable application fails to respond to the covered financial institution’s approval within the specified time. The status is also considered Approved Not Accepted when the covered credit transaction isn’t consummated or otherwise opened.
- A reasonable date to consider for reporting may be the approval date, the deadline for accepting the offer, or the date the file was closed.
- Denied is reported if the institution denies an application before the applicant withdraws the application, before it is closed for incompleteness, or before the application is denied based on incompleteness.
- The action taken date may be the date when the credit decision is made or the date on the denial notice.
- Withdrawn is reported when the applicant expressly withdraws the request for credit before the institution makes a credit decision, before the application is closed for incompleteness, or before the application is denied because it is incomplete.
- The action taken date may be the date the institution received the applicant’s withdrawal, or the date shown on the notification form in the case of a written withdrawal. Applicants may provide the request to withdraw verbally; be sure your procedures include how to document verbal discussions.
- Incomplete is reported if the institution takes adverse action because of incompleteness or provides a written notice of incompleteness (NOI), as defined under Regulation B, and the applicant does not respond to the request for additional information within the time specified in the notice.
- The action date may either be the date the action was taken or the date the denial or NOI was sent to the applicant.
- Additional circumstances could affect the adverse action taken code that addresses counteroffers, rescinded transactions, and conditional approvals. Learn more on pages 53 and 54 of The Small Business Entity Guide.
- As always, we are here to help and show you “A Better Way” to comply with the new Small Business LAR Rule.
TCA – A Better Way!
