An adverse action is any action which denies or offers less than favorable terms to an individual or business when they apply for credit, insurance or employment. There are two federal acts (Equal Credit Opportunity Act [ECOA] and Fair Credit Reporting Act [FCRA]) that govern adverse actions.
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Adverse Action Notices
When adverse action is taken an adverse action notice must be served to the applicant “within a reasonable amount of time” and needs to contain information such as:
- Specific reason why the applicant was denied. For example, “you were denied because you didn’t meet our lending criteria” is not acceptable. “You were denied because you have a history of late payments” is acceptable.
- Name, address and phone number of the credit bureau(s) that provided the credit report(s) used.
- If a credit score was used they need to provide:
- The numerical score (e.g 574)
- The range of the credit score (e.g 300-850)
- Key factors which are used in calculating the score (e.g Payment history and credit utilization)
- Name of person or entity that provided the score or data that the score is based on (this is usually the credit bureau that provided the credit report, e.g TransUnion, Experian or Equifax).
- Information that the applicant has the right to access their credit report for free from the credit reporting agency that supplied the credit report (this is in addition to the free report individuals have access to yearly). This notice must also state that the applicant has the option to dispute any inaccurate or incomplete information found in the report.
Learn how to dispute items on your credit report
- If an applicant was denied for information not obtained from a third party that is not a consumer reporting agency they must be informed of their right to access this information within a reasonable amount of time.
Sample Adverse Action Notice:
Below we’ve listed a sample adverse action notice. If you’re having trouble viewing it, we recommend looking at it on scribd.
<Company Letterhead>
<Date>
<Applicant Name>
<Address>
<City, State, ZIP>
Dear <Applicant>,
This letter is being sent to you in compliance with the Fair Credit Reporting Act, 15 U.S.C. Section
1681b(b)(3) to inform you that you may have been denied for <credit account/employment opportunity/insurance> due to information found in your credit report supplied by <credit bureau and contact information>.
Please find attached a copy of the report that was provided to us, as well as a copy of the Federal Trade Commission’s publication, “A Summary of Your Rights Under the Fair Credit Reporting Act.”
You have the right to dispute any of the information found in this credit report. To do so please contact the <credit bureau> using <credit bureaus dispute resolution information here>.
Cordially,
<Company name>
More Information About Adverse Action:
If you’d like to know more about adverse action we suggest reading the following sources:
- Adverse Action Notice Requirements Under the ECOA and the FCRA by Sarah Ammermann, Examiner, Federal Reserve Bank of Minneapolis
- FCRA Summary, Doctor Of Credit
- ECOA Summary, Doctor Of Credit
- What is an Adverse Action Notice? Â State Of New Jersey