An adverse action letter explains to an applying individual that they have been denied access to financial-related benefits or employment. The rejecting party is required to send an adverse action letter under the Fair Credit Reporting Act (FCRA) rules including information about how the denied individual may be able to obtain a copy of the consumer report within sixty (60) days.
Background Check Adverse Action Letter – For informing individuals that a background check uncovered information which led to adverse action being taken against them.
Credit Report Adverse Action Letter – A post-decision form sent by entities to consumers after deciding to deny/reject them due to their credit score and/or other information found in a consumer credit report.
Employment Adverse Action Letter – For informing job applicants that they were denied employment due to information stemming from a background check.
Landlord (Tenant) Adverse Action Letter – Used for informing applicant tenants that their application to rent was not accepted.
Loan Adverse Action Letter – A three (3) page document sent to individuals that applied for a loan to notify them that a negative action was taken regarding their application.
Mortgage Adverse Action Letter – Sent to individuals that applied for a home loan to inform them they have been denied (or need to accept different loan terms).
Pre-Adverse Action Letter – A form mainly used during the hiring process. Notifies a candidate that information uncovered in a background check could potentially result in their rejection.
An adverse action letter is required to be sent under federal law (15 U.S. Code § 1681m) to an individual recently rejected of financial-related because of their credit score or background history (“consumer report”).
After the rejection, the denying party is required to send a letter containing:
- Notice of the rejection (does not need to be specific);
- Consumer reporting agency contact details including:
- Mailing Address; and
- Telephone Number;
- A statement that the consumer reporting agency did not make this decision;
- A statement that the individual has the right to view the consumer report within sixty (60) days; and
- That the individual has a right to dispute the accuracy of the consumer report in accordance with (15 U.S. Code § 1681i).
A pre-adverse action letter is sent before the consumer report is generated.
- Requests consent to perform the consumer check on the individual and provides a copy of their Rights Under the Fair Credit Reporting Act.
An adverse action letter is sent after the consumer report is generated.
- Must provide details where the individual may download a copy of the report in accordance with FCRA Requirements.
Understanding the FCRA & ECUA
The two (2) laws that govern consumer reports are the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECUA). These laws hold consumer reporting agencies accountable for the ways in which they handle consumer information.
Originally passed in 1970, the FCRA ensures consumers have a just means of obtaining (and disputing) information that is collected on them. The law also protects who can view one’s report, limiting it to the individual themselves and entities and persons with a necessary and justifiable reason for doing so. It covers all of the major types of consumer reports including background, criminal, and credit checks.
Laws – 15 USC Ch. 41, Sub. Ch. IV
The Equal Credit Opportunity Act applies to both businesses and consumers, providing transparency in regards to the credit scoring process. This aids in helping consumers to understand the factors that went into their score as well as the exact reasons they were denied credit.
An adverse action letter must be sent within a “reasonable amount of time” after the decision has been made (15 U.S. Code § 1681im(b)(1)).
Download: Adobe PDF, MS Word (.docx), OpenDocument (.odt)
Include the letter requirements and it is always a good gesture to personally sign (although not required.
Send via USPS First (1st) Class Mail or equivalent to the individual. Recommended but not required, a certified letter (with return receipt) may be sent to give the sender a receipt that the individual received the letter.