Two regulations govern notices when a lender takes adverse action on an application for credit: the Fair Credit Reporting Act (FCRA) implemented by Regulation V, and the Equal Credit Opportunity Act (ECOA) implemented by Regulation B. While these two regulations share some common definitions, certain nuances can trip up lenders when it comes to co-applicants and guarantors. So, let’s get started and look at the notice requirements under each of these regulations separately.
Regulation B Notices
As outlined in 12 C.F.R. §1002.9 of Reg. B, a lender is required to provide notification to “applicants” within certain specified time periods upon taking adverse action. Who is an “applicant” under Reg. B? According to 12 C.F.R. §1002.2(e), the definition does not include guarantors. This view is then further reinforced by the Federal Trade Commission’s Advisory Opinion to Stinneford (07-14-00)1 that states only an “applicant” can experience “adverse action,” and that a co-applicant is an “applicant” but a guarantor is not.
Therefore, while co-applicants are entitled to an adverse action notice, lenders are not required to send an adverse action notice to guarantors since they are not considered “applicants” and cannot experience adverse action under Reg. B.
Additionally, §1002.9(f) allows a lender to choose to send the notice to only one applicant when there are multiple applicants. If this option is exercised, the lender should send the adverse action notice to the primary applicant where one is readily apparent.
For example, if a lender chooses to deny an application submitted by a primary applicant and a co-applicant, each is entitled to an adverse action notice under Reg. B. However, the lender can choose to send the notice only to the primary applicant. In contrast, when a lender denies an application submitted by an applicant that includes a guarantor, the lender is only required the send the notice to the applicant and no notice is required for the guarantor.
Let’s switch gears for a minute and look at the FCRA notices that are required. Under §615(a) of FCRA [15 U.S.C. §1681m(a)], if a lender takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, then the lender is required to send that consumer certain notices that pertain to the information in the consumer report. Section 603(k) of the FCRA [15 U.S.C. §1681a(k)] defines “adverse action” as having the same meaning as that set forth in ECOA.
Once again, we need to remind ourselves that a lender can only take adverse action under ECOA against applicants, which includes co-applicants but not guarantors. If there is any doubt as to the interpretation of the regulation, again we can look to the Stinneford Opinion, which also reiterates this position in the context of the FCRA. This is true even if the guarantor’s credit is the reason the application is being denied.
Combined Reg. B/FCRA Notices
In reality, the vast majority of lenders today are using combined Reg. B/FCRA notices. While co-applicants share denial reasons under Reg. B and have no expectation of privacy on a joint application in this regard, The Federal Reserve has made clear that lenders should not share credit score information among co-applicants.2 This means that when a lender is denying a credit request based on the information contained in both the primary applicants and co-applicants credit reports, the primary applicant is entitled to an ECOA adverse action notice outlining the shared reasons for the denial of the joint application, and also those FCRA notices that only pertain to the primary applicant’s credit report.
Likewise, the co-applicant is also entitled to the same shared reasons for the denial of the joint application, and those FCRA notices that only pertain to the co-applicant’s credit report. A lender would have the option of providing the shared ECOA adverse action reasons only to the primary applicant along with the primary applicants FCRA notices and then sending just the co-applicants FCRA notices to the co-applicant. Essentially allowing the lender to provide the primary applicant with a combined ECOA/FCRA notice and the co-applicant with just the co-applicant’s applicable FCRA notices.
But what about when you throw a guarantor into the mix? Let’s assume we have a primary applicant with a guarantor, and the lender pulls credit on each party. The primary applicant is entitled to receive the ECOA adverse action notice and the FCRA notices that pertain to the primary applicant’s credit report. The guarantor would not be entitled to the ECOA adverse action or any FCRA notices, since the guarantor is not considered an applicant against whom adverse action can be taken.
In summary, only “applicants” are entitled to notices under ECOA and FCRA. Co-applicants are considered “applicants,” but guarantors are not. If there are multiple applicants, the lender has the option of providing the ECOA adverse action to just one of them, being the primary applicant where one is readily available. Adverse action reasons are shared between co-applicants. And lastly, if a consumer report was the basis (in whole or in part) of the adverse action, each applicant is entitled to their own FCRA notices, but the consumers’ credit score information is not shared with the other co-applicants.
1. “Advisory Opinion to Stinneford (07-14-00).” Federal Trade Commission.
2. Ammermann, Sarah. “Adverse Action Notice Requirements Under the ECOA and the FCRA.” Consumer Compliance Outlook. Second Quarter, 2013.