Academic journal article ABA Banking Journal

Can Regs Bar Use of Negative Credit History?

Academic journal article ABA Banking Journal

Can Regs Bar Use of Negative Credit History?

Article excerpt

Q. We have a borrower with a low credit score and previous bankruptcy to whom we made a small car loan earlier this year. He is currently post due.

Recently we received the some borrower's application for a refinance of his personal residence.

The bank wants to deny this application because of the borrower's credit score and bankruptcy. He actually had this score and the bankruptcy at the time of the first loan, but we made it anyway because of his relationship with the bank and because the amount was small.

The loan officer believes that he cannot use any adverse credit knowledge that the hank had at the time of the first loan Jar a denial Jar any subsequent loans, because the bank made the first loan with that same knowledge. Is that true?

A This is more of a loan policy decision than a regulatory one.

Your bank's loan policy should address its underwriting guidelines and when an exception is permitted. The bank apparently made an exception when making the first loan, and now is presented with a second request. Your experience with this borrower tells you that another Loan is not in the best interest of the bank.

According to Regulation B, [section] 202.2(f), "application" means an oral or written request for an extension of credit that is made in accord with procedures used by a creditor for the type of credit requested. …

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