VIDEO: What must be included in an FCRA Adverse Action Notice
In this Compliance Clip (video), Adam discusses the requirements that must be included in a FCRA Adverse Action Notice. Adam talks about the specific requirements for each instance when a notice of adverse action is required to be provided to consumers.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to answer the question of what must be included in an FCRA Adverse Action Notice.
This Compliance Clip is, of course, a Fair Credit Reporting Act topic. Before we understand what must be included in an FCRA Adverse Action Notice, the content of the disclosure itself, we must also first understand when an FCRA Adverse Action Notice is required to be provided to the consumer.
Under the Fair Credit Reporting Act, they tell us that there are three times we would send an Adverse Action Notice to a consumer under the Fair Credit Reporting Act. The first is when we take adverse action with respect to consumers based in whole or in part on information contained in a consumer report. The second reason is if we were to deny credit for personal, family, or household purposes or increase the charge for such credit based, in whole or in part, on information obtained from a person other than a consumer reporting agency. And then finally, the third reason would be is if we take adverse action, in whole or in part, based upon information we receive from an affiliate.So this is slightly different from what we see in Regulation B, but these are the requirements under the Fair Credit Reporting Act that require an Adverse Action Notice.
To be clear, as a lender, if you are a lender, you are most likely going to see item 1. This is what's going to apply to you the most often. Items 2 and 3 are fairly rare, but some creditors do have situations where this does apply, but item 1 is by far the most common reason for adverse action notices under the Fair Credit Reporting Act.
So, let's take a look at the specific requirements.
If you're required to provide an Adverse Action Notice due to information obtained from a consumer reporting agency, in other words, you deny somebody credit because of their credit report. Then, what you have to do is provide them an Adverse Action Notice that includes a notice of the adverse action that's basically a statement saying that they're denied. The notice must also include disclosures of a numerical credit score used by such person in taking any adverse action, including the range of possible credit scores, all the key factors that adversely affected the credit score, the data in which the credit score was created, and the name of the person or entity that provided the credit score or credit file. You also must provide the name, address and telephone number of the consumer reporting agency. You must also provide a statement that the consumer reporting agency did not make the decision to take the adverse action. Finally, in your Fair Credit Reporting Act Adverse Action Notice, you must provide a notice to the consumer about their rights to obtain a free copy of the consumer's report from the consumer reporting agency within 60 days of receiving the notice of adverse action and the consumer's right to dispute the accuracy or completeness of any information held within the consumer report. This is what's required when you deny somebody due to information obtained in a consumer report provided by a consumer reporting agency. And this again is by far the most common.
Now, this Adverse Action Notice is typically not separate from your ECOA Regulation B Adverse Action Notice. In fact, you may be thinking, wait a second, do I have to give a separate Fair Credit Reporting notice? The answer is no. If you're a lender, your Adverse Action Notice form that you're using is most likely the combined notice that includes information both from the Fair Credit Reporting Act as well as Regulation B. Your Adverse Action Notice you provide for Regulation B also includes the required elements under the Fair Credit Reporting Act. But this here is what has to be on your Adverse Action Notice under the Fair Credit Reporting Act.
Now, let's talk about the other two situations ever so briefly.
If you're denying somebody due to information obtained from a party that's not a consumer reporting agency, somebody tells you, “Look, these people don't pay us back.” and you deny them because of that and they're not a consumer reporting agency. You have to then, at the time of adverse action, you have to clearly and accurately disclose to the consumer their right to make a written request for the reasons for adverse action within 60 days after learning of such adverse action. And then, if they do make that written request, a financial institution, within a reasonable period of time, must then disclose the nature of the information to the consumer. So you don't have to actually give the true information up front. You give them a notice saying they have a right to this information and if they contact you as required under the Fair Credit Reporting Act, do it within the time frame set forth such as providing within sixty days in writing, then you have to give them the information that you relied upon for adverse action. So that's what you do for information obtained from third parties other than consumer reporting agencies. That's when somebody else says that they don't pay them back and you decide to deny them because of that and the other third party is not a consumer reporting agency.
The same thing holds true with affiliates. If your affiliate says, “Look they're not paying us back,” this is a bad deal and you deny somebody due to information obtained from an affiliate. It's the same type of thing as what you do for third parties. You have to give them a statement that the consumer may obtain the information, upon written request, from the consumer received within 60 days after transmittal of the notice required and then not later than 30 days after you receive such a written request from the consumer. You must then disclose to the consumer the nature of the information upon which you relied to make the denial in the adverse action decision. So this is the information you would have received from your affiliate you would have to tell your consumer if they, in fact, replied to your initial statement. So this is what is required to be on an adverse action notice.
Again, the first item when you receive information that's on a consumer report. That is what is most common. That's what we see most often. But there are a couple of odd situations where you may be required to provide an Adverse Action Notice under the Fair Credit Reporting Act. And it's important to understand those rules.
That's it for this Compliance Clip.