[rcooper]

A question we recevied via email:
With the PPP program, a question came up on Reg B Adverse Action Notices. If you deny a PPP request for a company with $1 million or less in revenues and the application is in writing ( written app is required under the PPP government program), can both the statement of action taken AND the disclosure of a applicant’s right to a statement of reasons be given verbally?

Topic

[rcooper]

If there additional SBA notification requirements for SBA loan denials I am not aware of those. In regards to Reg B, for a business with gross revenue of $1 million or less you could provide the statement of action taken either verbally or in writing. However, you would be required to give the other notifications (ECOA statement and right to reasons) in writing; this can be done at the time of application (model form c-8) and then you’d only have to provide a verbal statement of action at the time you take action.

[rcooper]

Follow-up question:
Thanks – your comments and materials help! I just want to make sure I am clear that the ECOA statement and right to reasons ALWAYS have to be in writing. We do not take written applications for business loans – only for consumer loans. After reading a little more it looks like the requirement for these things to be in writing is covered under 12 CFR 1002.9(a) (2). Is that your understanding.

[rcooper]

For business with gross revenue of $1M or less, yes the “notice of right to a statement of reasons” (which also includes the ECOA notice) should always be in writing unless the application is taken entirely by phone. If it is taken entirely by phone you can provide the notice of action taken and the notice of rights verbally, but make sure the notice of rights verbalized includes all the info in C-8. The AAN rules for businesses are in 1002.9(a)(3). See below -the rules for $1M or less gross revenue are highlighted. If you aren’t providing the reasons for action and someone asks for it you’d be required to comply with the timing requirements in 1002.9(a)(2).

For businesses with gross revenue in excess of $1M you’d be required to provide the notice of action taken (orally or in writing) in a reasonable time and give a written statement of reasons if the borrower requests it within 60 days of notification of action take.

Of course, you can apply the consumer rules to all businesses or you can apply the small business rules. Some banks find that it is easier to do this (one set of rules for all or one set of consumer/one set of business rules) so they don’t have to remember three sets of rules.

[kmeade]

I received a message that the SBA will accept no additional loan entries for PPP once the total equals the $349B, which should be any moment now. If we cannot process a customer’s request for the PPP program, would we be required to give an adverse action notice? If yes, what would be the reason for adverse action?

[rcooper]

I saw this announcement this morning. Since we don’t have any guidance to the contrary, I’d suggest sticking with your normal adverse action procedures. If you have a loan application that was submitted while you were still offering this type of loan then I think you send an AA and put that the SBA PPP funding has been depleted and the program is not currently available in the “other” slot. If the program is not longer available and you receive an application (not common I assume since your lenders will likely have a conversation before an app is submitted), I don’t think it would be considered AA (see below) because the program isn’t available and you don’t offer the credit requested; however, I think I would prefer to go ahead and send an AAN to these customers as well for consistentcy and documentation.

1002.2(c):
Adverse action. (1) The term means:

(i) A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;

(ii) A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts; or

(iii) A refusal to increase the amount of credit available to an applicant who has made an application for an increase.

(2) The term does not include:

(i) A change in the terms of an account expressly agreed to by an applicant;

(ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;

(iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;

(iv) A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or

(v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.

(3) An action that falls within the definition of both paragraphs (c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of this section.

[Author]

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