4000 - Advisory Opinions
Whether Loan Application Forms May Contain Check Boxes to Assist Creditors in Complying with the ECOA and Regulation B
January 10, 1994
Mark A. Mellon, Senior Attorney
This is in response to your letter of July 8, 1993 to Janice Smith, the director of the FDIC Office of Consumer Affairs. It has been forwarded to me for a response. In your letter, you inquire whether check boxes may be used in loan application forms to assist creditors in determining whether certain information must be furnished to the federal government pursuant to the Equal Credit Opportunity Act (the "ECOA") and its implementing regulation, Regulation B, 12 C.F.R. Part 202 ("Reg B"). You tentatively conclude that the use of check boxes is acceptable, based on a recent staff interpretation of Reg B by the Board of Governors of the Federal Reserve System (the "FRS").
You state that your firm provides lending documentation to creditors. The creditors seek to ensure that they collect the necessary information for Reg B purposes only when it is appropriate to do so. To achieve this end, your firm proposes to include three check boxes in a loan application form which will indicate that:
b. based on the initial contact, the information is necessary; and
c. based on the initial contact, the information is necessary if the borrower seeks a mortgage on property which he intends to occupy as his primary residence and the requested loan is of a certain type.
If an applicant has had an opportunity to discuss his credit needs with a loan officer, the loan officer will determine whether the information is necessary or not, check off either the first or second boxes, and provide the loan application form to the applicant. If an applicant has not spoken with a loan officer, the form will be provided with the third box checked and the applicant will then determine on his own whether he should provide the necessary information.
Reg B states that federal financial regulatory agencies other than the FRS may substitute their own data-gathering programs as an alternative to Reg B requirements for those institutions which are subject to their supervision. See 12 C.F.R. § 202.13(d). The FDIC adopted Part 338 of its regulations, in part, to implement such a substitute monitoring program for insured state chartered banks which are not members of the FRS ("state nonmember banks"). The data-gathering requirements are set forth in 12 C.F.R. § 338.7. Section 338.7(a) states that information must be collected by a state nonmember bank for a home purchase loan application (excluding those received by telephone) when the dwelling is occupied or to be occupied by the applicant and has from one to four units.
Part 338 also requires state nonmember banks to maintain a loan/application register ("LAR") consistent with the requirements of Regulation C, 12 C.F.R. Part 203 ("Reg C"). See 12 C.F.R. § 338.8. Reg C implements the Home Mortgage Disclosure Act (the "HMDA''). State nonmember banks must collect information for home purchase loan applications and for home improvement loan applications and also for purchases and originations of such loans. This information must then be entered on a LAR within 30 days after final disposition of the loan application (that is, the application is denied or withdrawn, or the loan goes to closing). 12 C.F.R. § 338.8(c).
It is our opinion that, as currently drafted, the three check boxes will not be sufficient to ensure that depository institutions collect the loan application information that the federal government requires. This is because the third check box describes loans which are subject to the requirements of Reg B but does not also describe loans which are subject to the requirements of Reg C. Reg B and Reg C both require that information be gathered from home purchase loan applicants. Reg C goes beyond Reg B, however, in requiring information for home improvement loan applications and also for purchases and originations of home purchase and home improvement loans.
State nonmember banks must comply with section 337.7 which was promulgated pursuant to Reg B, and must comply with section 337.8, whose requirements are consistent with those of Reg C. The third check box is insufficient to meet those dual requirements because it only addresses loans covered by Reg B. It should be amended to state that certain information must be provided if the borrower seeks a mortgage on property which he intends to occupy as his primary residence and the requested loan is of a certain type or if the borrower seeks a home improvement loan. If this change is made and if the loan application specifies the type of information which must be provided by the applicant under section 337.7 and 337.8 (that is, the application has a section where the applicant may indicate race, national origin, gender, and other required information), this should be sufficient to satisfy FDIC requirements with respect to the ECOA and the HMDA.
The FRS staff interpretation of Reg B which you cite to as support for the use of check boxes on loan application forms merely states that the uniform residential loan application form issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association may be used by creditors without violating Reg B even though the loan applicant information which is requested on the form differs from that requested under Reg B. Creditors who are governed by Reg B are directed by the interpretation to delete, strike or modify the data-collection section when the loan being sought is not covered by Reg B. Creditors who are subject to the HMDA and a substitute monitoring program pursuant to 12 C.F.R. § 202.13(d) (such as state nonmember banks) may use the form as issued to obtain government monitoring information for loans covered by HMDA and 338.7. See 57 Fed. Reg. 12203 (1993).
You inquire whether an application that has been mailed to an applicant should include government monitoring information. Appendix A of Reg B states that when a creditor accepts a loan application by mail, it does not have to make a special request to the applicant if the applicant fails to complete the monitoring information on the application form. The creditor should indicate on the loan application whether it was received by mail, however. Appendix A of Reg C states that loan applications which are mailed to applicants must request Reg C monitoring information. If the applicant chooses not to provide the data, the creditor must indicate in the HMDA/LAR that the information was not provided by the applicant in an application which was received through the mail.
We therefore conclude that, for purposes of sections 337.7 and 338.8, loan applications by mail must include government monitoring information, but that the creditor is not required to make further requests for the information if the applicant chooses not to honor the initial written request for information.
I hope that this letter is responsive to your query. Please do not hesitate to contact me if you should have any questions about this or any other matter.