Adverse Action Needed When Blocking Credit

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    We have a Cash Reserve loan product where the customer takes out a loan that is tied to their checking account.
    If an item comes in that would overdraw the account, funds are moved to the checking account up to the limit. The Cash Reserve payment is debited from the checking account monthly and the account can be used as long as deposits are made to cover the
    payment amount each month.

    In the regulation it states: “adverse action does not include a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where such additional credit would exceed a previously established credit limit”. My question: If the customer no longer makes routine deposits and the cash reserve portion becomes past due, do we need to send an adverse action notice to “block” the cash reserve account from use permanently due to current delinquency? The account will still be open until it is paid off. We will just allow no further transfers from the loan.




    First off you probably would need to check your terms with your Cash Reserve agreement with the customer and see if this is addressed at all. I don’t think you would have to give a Adverse Action Notice, but you would need to notify your customer that you’ve frozen the line.

    I hope this helps,

    Jonathan Goforth

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