Adverse Action Simplified
Adverse Action notices are by far the most misunderstood of all compliance regulations. To put it in the simplest terms, Adverse Action is an explanation of credit denial or the inability to come to acceptable terms by either the creditor offering credit terms or the applicant’s counteroffer of credit terms.
You must provide an Adverse Action notice to inform the applicant or applicants that a decision of credit or denial of terms has been reached. The content of the letter includes the reason code(s) provided from the CRA or credit reporting agency or agencies.
Adverse Action Notices Explained
in part with ECOA (Regulation B) Part 1002.2 and additional sources.
An Adverse Action Notice must be produced within 30 days of the date the credit report is obtained based on the explanation above. If a counteroffer is deemed to be unacceptable by the customer, the Notice must be provided to the customer within 90 days after delivering the counteroffer. The ECOA does not specify how the Notices are to be delivered. But they advise to deliver in person, by regular mail, by fax or electronically. Note that a customer accepting a counteroffer of credit, no matter how unfavorable, negates “adverse action” under the ECOA definition. If that doesn’t happen, either because no lender approved the customer or the customer refused all credit offered, you are stuck with an adverse action situation. See the official Federal Trade Commission ruling here.
Who is required?
Creditors are generally required under the Equal Credit Opportunity Act and Regulation B to notify applicants within 30 days of receiving a “completed application” of the creditor’s approval, counteroffer, denial or other adverse notice regarding the application. Regulation B notifications of action taken are designed to help consumers and businesses by providing transparency to the credit underwriting process in a timely manner. Information that is generally included in a complete application includes any approvals or reports by governmental agencies or others who can guarantee, insure, or provide security for the credit or collateral.
What is a creditor?
A creditor is anyone who requests information from a person, persons, or business with the intent of providing or facilitating credit.
If you accept an application for credit regardless of if you are the funding source or providing credit information to a lender, you are considered a creditor and must abide by FCRA, ECOA, GLBA and other agency guidelines. Failure to do so can result in hefty fines leveled against an individual or business.
All information contained within is based on the research and opinions of industry professionals with many years of experience in compliance, credit reporting, software, finance and lending fields along with actual Federal Agency documents. No representation of this material is considered legal advice. Always consult your legal advisor for clarification of any information contained within.