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Loan Adverse Action Letter

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loan adverse action letter is used for informing a person that they have been denied a loan due to information uncovered in a consumer report. The form should be delivered by mail within 7-10 days of denial, although the FCRA (Fair Credit Reporting Act) permits recipients to be informed orally or digitally as well. Notices sent by creditors are mandated by two (2) laws, the FCRA (Fair Credit Reporting Act), and the Equal Credit Opportunity Act (ECOA). The form provides the recipient with information on why they were denied, their right to obtain a free credit report, information on their credit score (and the factors that affect their score), and contact information of the entity that provided the report.

Notice Requirements (2)

If an individual’s credit score is one of (if not the) reason for their rejection, special additions must be made to the adverse action letter. Each Federal law mentioned above has specific requirements for sending notices, which are noted below.

1 – FCRA Requirements

FCRA notice information must be provided if:

  • Adverse action was taken as a result of information revealed in a consumer report (regardless if it was the only reason or not);
  • The applicant’s credit is denied (or another unfavorable action) based on information that was acquired from third parties (not including consumer reporting agencies), relating to the consumer’s creditworthiness, standing, credit capacity, personal character, reputation, and/or mode of living; OR
  • Adverse action was taken based upon information provided by a corporate affiliate of the person taking the action.

Laws: FCRA (15 U.S.C § 1681)

Required information:

  • A notice that adverse action was taken as a result of information acquired from a consumer reporting agency;
  • The consumer’s right to receive a free copy of the consumer report from the reporting agency, so long it is requested within 60 days;
  • The consumer’s right to dispute the accuracy and/or completeness of any information found in the consumer report;
  • The name, address, and phone number of the consumer reporting agency that provided the report;
  • A clear statement that the reporting agency did not make the credit decision and is unable to provide to the consumer the specific reasons why adverse action was taken against them;
  • If the consumer was denied credit based on information obtained from third (3rd) parties other than consumer reporting agencies, it must include a statement on the consumer’s right to request the information that was relied on in taking adverse action within sixty (60) days of receipt of the notice;
  • If the consumer was denied credit based upon info obtained from an affiliate, the notice needs to contain a disclosure that states the consumer has the right to obtain information on the report by sending a written request within sixty (60) days after receiving the notice. The consumer needs to receive the information within 30 days after receiving their written request.

2 – ECOA Requirements

ECOA notice information must be provided if:

  • Adverse action was taken on a completed credit application;
  • Adverse action was taken on an incomplete credit application;
  • Adverse action was taken on an existing credit account; and/or
  • The creditor made a counteroffer to an application for credit and the applicant does not accept the counteroffer.

Laws: 15 USC Ch. 41, Sub Ch. IV

Required information:

  • The name and address of the creditor;
  • An ECOA antidiscrimination notice (should be very similar to the one that can be found on 12 C.F.R. §1002.9(b)(1))*;
  • The name and address of the creditor’s primary regulator;
  • A statement of the action taken by the creditor (if they denied, are offering different terms, etc.);
  • A statement listing the specific reason(s) for the action taken OR a disclosure that informs the applicant of their right to the specific reasons of their rejection and the name, address, and phone number of the person or office from which said information can be obtained.

*ECOA Notice: