When a loan application is denied, what is true regarding the return of application documents?

The correctness of the selected answer revolves around the guidelines set forth in lending regulations, particularly concerning the handling of consumer loan applications. When a loan application is denied, it is essential that the lender maintains transparency while also adhering to privacy considerations.

Returning application documents to the borrower allows them to retain important personal information and provides them with a sense of control over their data. However, lenders are required to maintain a record of these documents to ensure compliance with regulatory mandates and for potential future reference. This dual obligation of returning originals while keeping copies aligns with best practices in consumer lending.

The answer highlights the balance between the rights of the borrower and the obligations of the financial institution, ensuring that both parties are treated fairly and that necessary documentation is preserved in case of any disputes or needs for verification in the future.