VIDEO: When is an FCRA Adverse Action Notice Required?
In this Compliance Clip (video), Adam discusses when an Adverse Action Notice is required under the Fair Credit Reporting Act. Adam provides instances when financial institutions need to furnish an Adverse Action Notice to a consumer if an adverse action is taken.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to answer the question: When is an FCRA Adverse Action Notice required?
In order to understand when an Adverse Action Notice is required under the Fair Credit Reporting Act, it's first important to understand how the Fair Credit Reporting Act defines the term “adverse action”. An adverse action under the Fair Credit Reporting Act is a little bit broader than how adverse action is defined under ECOA in Regulation B. Typically, when we talk about adverse action, we reference the Equal Credit Opportunity Act and the definition under Regulation B. So it's important to understand that the Fair Credit Reporting Act actually defines adverse action a little bit more broad, a little bit wider than how it's defined under Regulation B.
Under the Fair Credit Reporting Act, an adverse action includes adverse action as defined under ECOA. So the ECOA definition of adverse action does transfer over to FCRA, but we have to add a few things because FCRA includes in the definition of adverse action a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of any insurance, existing or applied for, in connection with the underwriting of insurance. It also includes a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee. It also includes a denial or cancellation of, an increase in any charge for, or any adverse or unfavorable change in the terms of a government license or benefit. Or an action on the application or transaction initiated by a consumer, or in connection with account review that is adverse to the consumer's interest.
Basically we have regulation B, plus some things for insurance, plus some things for employment, plus some things for government benefits, and some things related to transactions initiated by consumers. So for the most part, if we're talking about loans, it's going to be substantially similar to what we deal with as it relates to Regulation B. So adverse action is slightly different under the Fair Credit Reporting Act.
As far as when an adverse action notice is required, the Fair Credit Reporting Act requires users of consumer reports. So if you pull a credit report as part of your loan process, or even part of your employment process, it requires users of consumer reports such as creditors to make certain disclosures when you do certain things.
The following things are the triggers that require an Adverse Action Notice under the Fair Credit Reporting Act. It includes taking adverse action with respect to consumers based in whole or in part on information contained in a consumer report. So if you deny somebody a loan because their credit score is 212, that's information contained in the consumer report and therefore you owe them an Adverse Action Notice under the Fair Credit Reporting Act.
On the flip side, we saw adverse action covers more than just loans, it covers employment purposes. If you deny somebody employment because of information found in a consumer report like a credit report, then you also would owe them an Adverse Action Notice. For our intents and purposes in this compliance clip, let's assume we're talking about loans, and so it's pretty straight forward. If you use a credit report in a loan, you're going to deny them because of that credit report, you owe them an Adverse Action Notice under the Fair Credit Reporting Act.
The Fair Credit Reporting Act gives us some other reasons why an Adverse Action Notice would be required. This also includes if your institution were to deny credit reporting 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 bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. So, it's things that would often be found in a consumer report but it's not from a consumer report, it's from another source.
And then finally, the final reason you would have to give an Adverse Action Notice is if you take certain adverse action based in whole or in part on information you receive from an affiliate. So, for our intents and purposes, if you're a lender, the first bullet point is really what's going to apply if you take adverse action with respect to consumers based in whole or in part on information contained in a consumer report. In other words, you deny them because of their credit score information. Then you owe them an Adverse Action Notice under the Fair Credit Reporting Act.
Now, hold on. Do you have to give a separate Fair Credit Reporting Act Adverse Action Notice from Regulation B and ECOA Adverse Action Notice? The answer to that, of course, is no, because the Adverse Action Notice that you're providing is a combined adverse action notice that includes requirements both from Regulation B and ECOA, but also from the Fair Credit Reporting Act.
So, most of you, you're fulfilling your responsibilities under the Fair Credit Reporting Act by providing a combined disclosure, an Adverse Action Notice that contains the requirements under both Regulation B and the Fair Credit Reporting Act.
So, this answers our question of when is a Fair Credit Reporting Act Adverse Action Notice required?
That's all I have for this compliance clip.