The proposed regulation to implement section 1071 did not address the handling of joint applications. This writer and others commented on the lack of guidance for reporting joint applications. Joint applications for commercial and agricultural loans are not common, but they do occur. The issue is whether information is collected for each applicant, or for a single applicant, and if a single applicant, which applicant.
The final regulation, published on March 30, includes comment 103(a)-10 which provides that if a covered financial institution receives a covered application from multiple businesses that are not affiliates, it shall compile, maintain, and report data pursuant to final §§ 1002.107 through 1002.109 for only a single applicant that is a small business. A covered financial institution shall establish consistent procedures for designating a single small business for purposes of collecting and reporting data under subpart B in situations where there is more than one small business co-applicant, such as reporting on the first small business listed on an application form.
It appears that the CFPB has concluded that the number of joint applicants will be so small that lenders can do whatever they want, but must establish procedures for consistency.
There is no common application form for commercial or agricultural loans. So will the form used by your institution have space for multiple applications? If not, then how will you decide which of the multiple applicants will be used for data collection and reporting. Possibilities for selecting an applicant include:
- Alphabetical by the name of the applicant;
- Chronological, based on the date and time the application is received; or
- Biggest bang for your buck – Choose the applicant that best fills a gap in your lending. For example if joint applicants (one a white female, the other a white LGBTQI+) report the one from the class for which you have had the fewest number of applicants.
Compliance Resource has scheduled a webinar entitled Section 1071 Final Rule: What You Need to Know Now for 2:00 p.m. EDT on April 11, 2023.