Banking Regulations Compliance | MLA Safe Harbor Denied Applications

You are probably very aware that the timing of the covered borrower status check, under the Military Lending Act’s safe harbor, has been widely debated. We are, of course, in the camp that to obatin the safe harbor, the status check should be done at the time of application. One thing you may not have thought about is how that affects your denied and/or withdrawn files? Those don’t need evidence of a status check, right? Not so fast.

There may be instances where you know at the time of application, that you will not make the loan.  Thus, there is no reason for you to do a status check on the applicant as they won’t meet the definition of a covered borrower. There will also be instances; however, where you’re not sure at time of application if you will deny the loan request.  Similarly, you won’t know if the application will later be withdrawn by the applicant. This means if your procedure is to do a status check at the time of application, we would expect to see evidence of a status check on some, and maybe even the majority of your denied/withdrawn applications. If your denied and withdrawn files never have a documented status check, it could raise questions about your process.

Published
2016/10/26
Diane Dean