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Tell me if I have this correct and if not please set me straight…
If consumer does not meet the ATR requirements then the loan cannot be made.
Or, does it mean that the bank will lose its rebuttable safe harbor and the loan can be made?
1026.43(c):A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
You must comply with the requirements in 1026.43 when making a covered loan. You may comply with the general ATR rules or the QM rules. If you make a QM you can have either a safe harbor or rebuttable presumption of compliance if it is a HPCT. If you do not comply with either the ATR or QM rules under 1026.43, you can expect enforcement actions from your regulator and possible legal action from borrowers, both of which could be severe. Here is an article from the American Bar Association that details what can happen if you do not comply with the ATR rules (see the section on “Failure to Comply”): https://www.americanbar.org/publications/blt/2013/04/02_shatz.html.
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