Adverse Action Reasons for Denying a Criminal
What do your lenders do when a suspected criminal (who is about to be arrested) applies for a loan? You deny them of course! But the real question is, how do you deny them without tipping them off or getting them upset? This Compliance Clip (video) explains how to deny a criminal without causing more PR problems than necessary.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about the adverse action reasons for denying a criminal.
A question I've received is: Can we deny a known criminal that we have reason to believe will soon be arrested again? If so, what denial reasons should we use?
To answer this question, we're going to look at a couple of rules. We're going to first look at fair lending laws. We're going to look at Regulation B, as well as at some BSA considerations.
So let's break this down ever so briefly.
Under fair lending, our first question is, are we allowed to deny somebody who is a criminal just because they were a criminal? Or because we think they might get arrested? Now, if you have full reason to believe they're going to get arrested, maybe a sheriff tipped you off or you know that that is coming, there's a grand jury out or something and you're just worried that they're not going to be able to repay the loan because they'll be in jail, then you can deny them. You can actually choose to do business with who you want to as long as your denial is not based on a prohibited basis.
So what is a prohibited basis? This includes things like ethnicity, race, gender, marital status, age and so forth. So you can choose to do business with who you want to and if you don't like their activity, then you can choose to deny them. If you deny them though, the question becomes what denial reason do we provide? For that we look into Regulation B.
Regulation B says that we have to provide denial reasons under 1002.9(a)(2)(i), and when we give denial reasons, we have to provide a statement of specific reasons for the action taken or the denial. For denying somebody because they're a criminal, what do we use? Do we say because you're a loser? Because you're going to jail? Maybe tip them off because you're a criminal, because your character? None of those reasons are really fun, aren’t they? They're not. So what do we do?
Well, this is where we go further into the rule instead of looking at 1002.9(a)(2)(i). We can look at point (ii). It says that in lieu of providing specific reasons for the action taken you can actually give the applicant a disclosure of their rights to the statement of specific reasons within 30 days if the statement is requested within 60 days of you giving them the notification. Basically, here you can take a gamble to not give them their specific reasons, but give them a little bit different notice and take a gamble that they're never going to ask you for the reasons. Probably because they'll be in jail and by the time they get out and look at the denial notice, they had in their hands when they got arrested, etc. You get it, right? So that's what you can do.
Now if you're going to do this, there might be some logistics in doing this because you may not have the model form ready to go, but most form vendors that create your denial notices have a notice that complies with point (ii). You might just have to dig or give your vendor a call.
For your reference, there's a few things that have to be in this disclosure. The disclosure must include the name of the person or office who could provide the reasons to the applicant, their address and their phone number. That is what’s required.
Also, there are some BSA considerations when we are denying a criminal for being a criminal. Frankly, this is a reminder that a SAR is required if an illegal activity is conducted or attempted through your organization. So, if you're required to file SARS, which most of my audience is, then you need to make sure that you keep your BSA officer in the loop for these types of denials, so very important.
That's all I have for you today.