John R. Goff, Vice President Compliance
Keesler Federal Credit Union
2602 Pass Road
P.O. Box 7001
Biloxi, MS 39534-7001
Re: Risk Based Pricing Policy; Right of Review
Dear Mr. Goff:
You are implementing a risk based lending program in which the interest rate for a particular loan depends on the member's credit risk score. You have asked whether the member has a right of review for the interest rate offered in response to a loan application. If the member has been denied a loan at a particular interest rate because of his creditworthiness, the member has a statutory right of review.
The Federal Credit Union Act provides, in part, that:
If the bylaws provide for a credit committee, all applications not approved by the loan officer shall be reviewed by the credit committee, and the approval of a majority of the members who are present at the meeting when such review is undertaken shall be required to reverse the loan officer's decision provided a majority of the full committee is present. If there is not a credit committee, a member shall have the right upon written request of review by the board of directors of a loan application which has been denied.
12 U.S.C. §1761c(b). Keesler Federal Credit Union's bylaws do not provide for a credit committee, so a member has the right, upon written request, to have his denied loan application reviewed by the board of directors. If the member is seeking a rate for a particular loan lower than that which the loan officer offers due to the member's creditworthiness, the member may request that the board of directors review the loan application. Even though the loan officer is willing to make a loan at a higher rate, in effect, the member's loan application at the lower rate available to others has been denied. In reviewing the denied loan application, the board of directors should apply the same risk based lending policies that the loan officer was presumably using in determining the interest rate on that specific loan for the member.
We note that the right of review of a denied loan application is completely separate from any adverse action notice requirements under Regulation B. 12 C.F.R . Part 202. Although NCUA enforces Regulation B, you should address any questions regarding the regulation to the Board of Governors of the Federal Reserve System since that agency interprets Regulation B.
Sheila A. Albin
Associate General Counsel