The following question appeared in the Q&A section of Banking Spectrum's Report Bulletin last month. Compare your answer to the correct answer below:
Q: A customer applied for a $10,000 HELOC with us. His credit and other underwriting criteria are good. He has also brought at lawsuit against the bank claiming that we allowed an unauthorized person in his business to improperly write checks and withdraw funds from the business account while he was in the hospital. We do not feel comfortable making him this loan. How should we handle this?
A: One approach is to deny the credit but find a basis for denial other than his credit qualifications. Remember the 4 C's of credit, and “character” is one of them. This might require a bit of creativity in completing the adverse action form. Another approach to consider is why not grant the HELOC application, a gesture of good will, not a lot of money, not a credit risk to the bank, and it might just help you settle this case.