Credit unions doing member business lending need to remember the Regulation B adverse action requirements. Here are three main steps. First, determine whether the loan is for a business, commercial or agricultural purpose. If the loan purpose isn't clear from the application, verify the purpose with your member and document the response.
The second step involves determining asset size. Reg B defines two asset sizes-small businesses as those with gross revenues of $1 million or less in their preceding fiscal year, and large businesses as those in excess of $1 million. The credit denial rules will vary depending on the business' asset size.
The last step addresses the notification process when denying business credit. Reg B requires you notify the small business applicant of the credit denial within 30 calendar days of receiving the completed application. An adverse action notice must be given at that time. It can be provided orally or in writing. It must include your credit union's name and address, The Equal Credit Opportunity Notice, the name and address of your federal examining agency, and a statement of the reasons for the credit denial.
For large business applicants, Reg B only requires the adverse action notice be provided within a reasonable time period. The notice only needs to state that credit is denied. This may be done orally or in writing. If the applicant makes a written request for the credit denial reasons within 60 days of the denial, they must be provided along with the Equal Credit Opportunity Notice.
Sue M. Burt is senior attorney with Bankers Systems, Inc. Ms. Burt can be reached at (800) 397-2341 or at www.bankersystems.com.