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My bank currently offers a home-secured loan product to residents of its state only. If a resident of another state applies for the product, how does the bank code the action taken for purposes of HMDA reporting?

My bank currently offers a home-secured loan product to purchase solar panels to residents of its state only. However, the bank's online application allows residents of other states to apply for this product. If a resident of another state applies for the product, how does the bank code the action taken for purposes of HMDA reporting? The product is not offered to them so it seems it is not a denial, and the customer is not expressly withdrawing the application.

Although the regulations are not entirely clear, this is arguably not an application, especially if the limitation is disclosed on the website and application, and thus not reportable under HMDA.

HMDA requires banks to report on “applications” for certain loans. An “application” is a request for credit “that is made in accordance with procedures used by a financial institution for the type of credit requested.” (See Regulation B, §1002.2(f), Regulation C, §1003.2(1)), and Comment 1 to §1003.2 of Regulation C that the Regulation B Commentary on the definition of application generally applies under Regulation C.)

The question is whether the bank offers the “type of credit” requested if it is not available to non-residents. If not, there is no application and thus no need to report under HMDA.

Comment 1 to Regulation B’s §1002.2(c)(2)(v) offers guidance on the meaning of “type of credit” through a comparison of “types of credit” and “terms of credit.” It explains that when “an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of downpayment), a denial of the application for that reason is adverse action …”

However, the applicant’s residential status is not a term of the loan and is arguably related to the type of loan being offered. This argument is boosted if the restriction is indicated in the application or website. For example, lenders might disclose on an application that the loan product is only available to those 18 or older.

In addition, if the bank discloses the restriction on the application or website, it might be argued that the borrower did not apply “in accordance with the creditor's procedures” so therefore there is no denial.

That being said, Regulation B does not address this issue specifically, so it is not clear.

If the bank clearly discloses prior to application that it does not make solar-panel loans to non-residents, it could conclude that there is no application and thus no need to report under HMDA. If it determines that there is an application, it would use the “denial” code (code 3) and the reason code “other” (code 9). (November 2016)

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