Under ATR requirements, lenders must do what before extending credit?

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Lenders must assess and document the borrower’s ability to repay the loan before extending credit. This means evaluating factors like income or assets, employment status, the borrower’s monthly debt obligations, and the proposed loan payment schedule to determine whether the borrower can make payments under the terms. The result of this evaluation must be documented in the loan file, reflecting a reasonable, good-faith determination.

Other options don’t meet this requirement on their own. Filing annual regulatory reports is a compliance task, not a decision about whether the borrower can repay a specific loan. Verifying income and assets through third-party checks can be part of the process, but ATR can be satisfied through reasonable verification and analysis, not necessarily third-party verification alone. Relying solely on the borrower’s credit score ignores the full picture of repayment ability, which includes income, debts, and the loan’s payment obligations.