Adverse Action Notice Requirements Under the EEOC and the FCRA
March 26, 2018
Two federal laws — the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, and the Fair Credit Reporting Act (FCRA) — reflect Congress’s determination that consumers and businesses applying for credit should receive notice of the reasons a creditor took adverse action on the application or on an existing credit account. Notice is also required under the FCRA for adverse actions taken with respect to insurance transactions, employment decisions, and in certain other circumstances.
The two laws serve different purposes. Adverse action notices under the ECOA and Regulation B are designed to help consumers and businesses by providing transparency to the credit underwriting process and protecting against potential credit discrimination by requiring creditors to explain the reasons adverse action was taken. The FCRA’s requirements for adverse action notices apply only to consumer transactions and are designed to alert consumers that negative information was the basis for the adverse action. Under the FCRA, the consumer has 60 days from the date of the notice to obtain more details about the negative information so that if it is erroneous, the consumer can correct it. To reduce the compliance burden, a creditor can use a single, combined notice to comply with the adverse action requirements of both laws, and model forms have been published in connection with Regulation B.
To ensure compliance, it is important to understand how the requirements of Regulation B and the FCRA relate to and differ from one another.
What Is Adverse Action?
Regulation B defines adverse action as:
– A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms), and the applicant uses or expressly accepts the credit offered;
– A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts; or
– A refusal to increase the amount of credit available to an applicant who has made an application for an increase.
To provide greater clarity about the definition, Regulation B also specifically delineates what is not adverse action:
– A change in the terms of an account expressly agreed to by an applicant;
– Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
– A refusal or failure to authorize an account transaction at point of sale or loan except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts or when the refusal is a denial of an application for an increase in the amount of credit available under the account;
– A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or
– A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.
The information provided in this article is for general informational and educational purposes only, and is not a substitute for legal advice. Accordingly, before taking any actions based upon such information, we encourage you to consult with the appropriate legal professionals or licensed attorneys.