Loan modifications, skips, and adverse action notices

The compliance team has recently blogged about ways in which the current regulations permit credit unions to provide relief to affected borrowers during the COVID-19 national emergency:

• Mortgage Loan Modification After Forbearance;
• Skip a Pay Part II: Closed-End Loans;
• Mortgage Loan Forbearance Agreements and COVID-19; and
• Allowing Your Members to Skip a Payment (Or Two) on Open-End Credit.

Last year the compliance team wrote several blogs and articles about adverse action notices:

• When to Include a Credit Score on Adverse Action Notices;
• What to do when you don’t: Let’s talk about Adverse Action Notices;
• Adverse Action Notices for Cosigners;
• Joint Applicants and Adverse Action Notices;
• Prequalifications and Adverse Action Notices; and
• Adverse Action Notices: NCUA Supervisory Priority for 2019.

Today’s blog merges the two worlds and discusses what may be required if your credit union denies a member’s request for a loan modification or a payment deferral on a credit account. Depending on the facts and circumstances, Regulation B  may require the credit union to send an adverse action notice to a member who requested a modification or payment deferral but was denied. Allowing a member to defer payment of a debt falls under Regulation B’s definition of credit in section 1002.2(j). The Consumer Financial Protection Bureau’s (CFPB) Equal Credit Opportunity Act (ECOA) supervision and examination manual confirms that “a loan modification is itself an extension of credit and subject to ECOA and Regulation B.” Moreover, Federal Reserve Board (Federal Reserve) guidance from the last economic recession also explains that a loan modification would constitute an extension of credit under Regulation B.

 

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