Notice Of Adverse Action
What Is An Adverse Action?
A lender or a company that denies you credit because of the information in your credit reports must send you a notice of adverse action. The notice of adverse action simply provides more information on why your application was denied.
You may get a letter that tells you the issues in your credit report that caused the denial and the credit reporting agency that was used, or a letter that tells you the name of the credit reporting agency used and shows the consumer how to ask for more information about the issues leading to the denial.
Adverse Action Notice Requirements
A creditor, lender, or company issuing credit must do the following when taking an adverse action:
- They must mention that they are taking adverse action based entirely or partly on a credit report
- The adverse action must be for a credit application
- They must send the notice of adverse action as soon as they have made a final decision about the application
- They must reveal to the consumer the credit reporting agency they used for the background checks
- They can give the reasons for the denial or advise the consumer on how to obtain reasons for that denial
The Fair Credit Reporting Act (FCRA) ensures these requirements are followed because it is responsible for protecting the rights of consumers who apply for credit. A creditor will still consider the above requirements when increasing or decreasing a credit line.
Employment Background Checks
A significant number of employers depend heavily on background checks to screen prospective employees. Employers must first obtain your permission before pulling the credit report for screening.
Pre Adverse Action Notification
When employers find information in your credit reports that may lead to them denying you employment, they must send you a pre-adverse action notice together with a copy of the report itself. This letter is meant to warn the job applicant of the potential denial.
Adverse Action Letter From Employer
The employer can then send the job applicant an adverse action notice if the employer decides to deny employment. This adverse action letter must have all the elements of an adverse action letter sent by creditors to customers.
You may also receive an adverse action letter when you are going for a promotion that requires background checks. States such as California, Oregon, Vermont and others have banned employment background checks so that people with bad credit can still get jobs. When people with bad credit get jobs, they are more likely to improve their credit scores than when they are unemployed.
What Is In An Adverse Action Notice?
Elements Of Adverse Action Notice
The following must be present in a notice of adverse action:
- Credit score of the consumer it was used to make the decision
- Names, addresses and phone number of the credit bureau that gave the company your credit report
- Notice that the credit bureau that issued your credit report did not make the adverse decision
- A section that reminds you that you have 60 days to request for a copy of the credit report used by the creditor to reach the adverse decision
- A section that reminds you that you can dispute the accuracy or completeness of the credit report