Last week I blogged about creditors who condition the extension of credit on requiring the spouse to be the cosigner. See here. This resulted in several questions concerning the options that creditors have in delivering adverse action or turn-down notices under the Equal Credit Opportunity Act (ECOA). I started this discussion earlier this year. See here. But, let me continue it.
The ECOA and Regulation B require that an applicant be notified of adverse action taken on an application generally within 30 days. But, what about the content of the notification itself? What has to be included in the notice?
When an adverse action notice is required, the creditor has basically two options. It may:
- Give the specific and principal reason(s) for the action taken, such as “unable to verify employment” or “bankruptcy.”
- Or, it may instead choose to tell the applicant that he or she has the right to a statement of the specific reasons if such request is made.
Either of these will satisfy the ECOA adverse action notification requirement. But, as is said on late night television, “there’s more!”
The Fair Credit Reporting Act (FCRA) also has requirements in connection with adverse action. The FCRA requires that a creditor disclose the source of its information when it has based its decision in whole or in part on information from a source other than the applicant or its own files. And the FCRA also requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affect the consumer’s credit score.
This does get complicated. Fortunately, the CFPB has provided sample forms in Appendix C of Regulation B that provide for both the ECOA and the FCRA disclosures. Check out this link to Appendix C of the Regulation for the alternatives available to you.
Practice Pointer:Verify that your adverse action or turn-down notice complies with the requirements of both the ECOA and the FCRA.
Please note: This is the sixty-third blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.