If you’re an organization that processes credit applications, it is your duty to provide an Adverse Action Notice if a consumer is denied credit. And you’ve got to provide it within 30 days of receiving a credit application. There are two key laws here (both federal) that govern the requirements around adverse action notices — the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). They’re in place to make sure consumers applying for credit are given the reasons a creditor took adverse action on the application (or on an existing credit account).
An adverse action means:
- Denying credit to an applicant
- Refusing to grant credit in substantially the amount or on substantially the terms requested by the applicant, unless the applicant accepts your counteroffer;
- Any action taken or determination that is adverse to the interests of the consumer (for example, unwinding a spot delivery)
Head’s Up: This infographic is an oversimplification of adverse action requirements, as we can’t fit the whole body of law on one little page. It’s not intended as legal advice. Consult your legal counsel for more detailed information.
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If you have any questions or are unsure if you should provide an adverse action notice or not you should consult your in house counsel or finance specialists.
The information above is an excerpt from a policy provided by two of our partners, Hudson Cook LLP and Auto Advisory Services and Auto Advisory Services. We work with them and other industry experts to make sure we are providing accurate and current information, and we manage that information in an online Compliance Management System. One of the benefits of using a Compliance Management System is that it houses all the policies and guidelines you need to be aware of for your industry so you don’t have to go hunting down information; it is simply at your fingertips.