Adverse Action Meaning

Adverse Action is a notice to inform the applicant or borrower of a denied credit application. The denied credit application is based on the data displayed on a given credit report. The credit data also includes the details of the credit reporting agency. The details of the credit reporting agency are written on the Adverse Action Notice.The Adverse Action Notice according to Regulation B of the Equal Credit Opportunity Act (ECOA) is designed to help the applicants or borrowers. The applicants or borrowers are entitled to the transparency of the credit underwriting process and to the protection against possible credit card discrimination. Credit card discrimination can be avoided by requiring the creditors to provide and explain the specific reasons for the Adverse Action Notice.
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Contents

Adverse Action definition
Adverse Action Mean On Credit Report
Adverse Action Affects Credit Score
Adverse Action for Background Check
Requirements On An Adverse Action Notice
What Is Not Considered An Adverse Action?
Getting An Adverse Action Notice?
Adverse Action Under The FCRA

The Adverse Action Notice must:
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Give notice of the Adverse Action.
Supply the name, address, and contact details of the credit reporting agency that provided the credit report.
Incorporate a statement that the credit reporting agency did not make the decision for the Adverse Action and is unable to provide the borrower with the specific reasons why the Adverse Action was taken.
Give notice of the borrower’s right to get a copy of the credit report from the credit reporting agency.
Give notice of the borrower’s right to dispute with the credit reporting agency the accuracy and completeness of any information found on the credit report.
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Adverse Action Mean On Credit Report

The Adverse Action Notice on the borrower is based on the credit report from a specific credit bureau. The credit bureau’s details like name and contact details are provided in the Adverse Action Notice. The Adverse Action Notice also states that the credit bureau was not involved in the decision and the reason for the denied application.

The denied application’s reasons could be any of the following:

An incomplete credit application
Insufficient income
Unverifiable employment
Limited or no credit
An insufficient number or invalid type of credit references
Past or present delinquent accounts
Foreclosures or repossessions
Bankruptcies

The Adverse Action Notice can help identify and understand better the reason for the denial of the application. The reason for the rejection of the application can serve as a basis in case the borrower wants to file a dispute. Filing a dispute can be useful in cases of fraud, in which the borrower was not aware of the fraudulent transactions due to a possible identity theft.

Adverse Action Affects Credit Score

Yes, the Adverse Action affects credit score if the creditor or the lender pulls a hard credit inquiry. The hard credit inquiry can temporarily lower the credit score. The credit score can negatively affect the borrower’s chances of getting approved for the next loan application.

According to Section 615a of the Fari Credit Reporting, the Adverse Action Notice must provide the numerical credit score. The credit score is based on the credit report and the following information such as:

The range of potential credit scores under the model used
All key factors that negatively affected the credit score.
The date on which the credit score was generated
Name of the credit bureau that generated the credit score

The credit score has five key factors, namely:

Payment History identifies missed payments and accounts for 35% of the FICO® Score.
Amounts owed show the credit usage as represented by the credit utilization ratio and account for 30% of the FICO® Score.
Credit History Length tells the duration of the credit accounts held and accounts for 15% of the FICO® Score.
Credit Mix shows the types and amounts of each credit account and accounts for 10% of the FICO® Score.
New Credit shows the number of hard inquiries lenders make and accounts for 10% of the FICO® Score.

Adverse Action for Background Check

The Adverse Action Notice in a background check is necessary when it comes to the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has a Specially Designated Nationals (SDN) List.

The Specially Designated Nationals (SDN) List contains names of individuals or entities that are prohibited from making business in the U.S. These individuals or entities may become applicants or borrowers and can meet loan underwriting standards. The loan underwriting standards are met but have a good hit on the Specially Designated Nationals (SDN) List, and this can be used as a denial reason on the Adverse Action Notice.

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Requirements On An Adverse Action Notice

The Fair Credit Reporting Act (FCRA) under Section 615(a) states the requirements for an Adverse Action Notice. The Adverse Action Notice shall incorporate the following disclosures:

Notice that the Adverse Action was taken based on the report from a consumer reporting agency
The applicant’s or borrower’s right to:
1. Get a copy of the consumer report for free from the consumer reporting agency, if requested, within 60 days.
2. Dispute the correctness or completeness of any information in the consumer report by the consumer reporting agency.
The name, address, and contact details of the consumer reporting agency that provided the report to the applicant or borrower.
A declaration that the consumer reporting agency did not make the credit decision and is not able to provide the specific reasons for the Adverse Action.
Credit score disclosures if the credit score became a factor in the Adverse Action.
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Regulation B of the Equal Credit Opportunity Act (ECOA) includes content and format requirements for an Adverse Action Notice. The Adverse Action Notice shall include the following disclosures:

The creditor’s name and address
The applicant’s or borrower’s right to:
An ECOA anti-discrimination notice that prohibits creditors from denying credit applications based on race, color, religion, national origin, sex, marital status, and age.
The name and address of the creditor’s primary regulator
A statement of the action taken by the creditor
A declaration of the specific reasons for the action taken or a disclosure of the applicant's or borrower's right to a statement of specific reasons, including the name, address, and contact details of the source of information.
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Regulation B of the Equal Credit Opportunity Act (ECOA) states what is required on an Adverse Action Notice. The Adverse Action Notice must be served by the creditor to the applicant or borrower within:

thirty days after receiving a complete credit application.
thirty days after receiving an incomplete credit application.
thirty days after taking action on an existing credit account.
ninety days after making a counteroffer to an application for credit if the applicant does not accept the counteroffer.
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The Adverse Action Notice under the Regulation B of the Equal Credit Opportunity Act (ECOA) is not required if:

The transaction does not involve credit.
A credit applicant or borrower accepts a counteroffer.
A credit applicant or borrower expressly withdraws an application.
The creditor approves a credit application, and the two parties expect a status inquiry from the applicant within 30 days, but it does not happen, so the application is withdrawn.

What Is Not Considered An Adverse Action?

Regulation B of the Equal Credit Opportunity Act (ECOA) defines what is not an Adverse Action, namely:

Change in terms of an account agreed by the applicant or the borrower expressly
Any action or forbearance that is related to an inactive, default, or delinquent account
Refusal or failure to permit an account transaction at the point of sale or loan except when the rejection is a termination or an unfavorable change in terms of an account or when the rejection is a denial of an application for an increased amount of credit of an account.
Refusal to extend credit due to law prohibiting the creditor from extending the requested credit.
Refusal to extend credit due to the creditor not offering the type of credit requested.

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Getting An Adverse Action Notice

Any applicant, including individuals applying for credit, businesses of any size, or any person liable or will become liable for debt like a co-applicant, can get an Adverse Action Notice. The Adverse Action Notice, according to Regulation B of the Equal Credit Opportunity Act (ECOA), will be given to the primary applicant in case of multiple applicants or borrowers. Multiple applicants or borrowers under the Fair Credit Reporting Act (FCRA) are given their respective Adverse Action Notices.

The Adverse Action Notices are given separately to each individual applicant or borrower for the usage of their credit scores. Credit scores that are not required for multiple applicants under the Fair Credit Reporting Act (FCRA) can allow financial institutions to provide combined Adverse Action Notices for all applicants or borrowers.

An Adverse Action Under The FCRA

Adverse Action under the Fair Credit Reporting Act (FCRA) is a notice that must be sent by creditors, lenders, and other entities in the following circumstances:

The credit application is denied
Extended credit is not granted on the amount or terms the borrower wanted
Negative changes are made in the credit account based on the credit report information

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Adverse Action Meaning

Adverse Action Mean On Credit Report

Adverse Action Affects Credit Score

Adverse Action for Background Check

Request Information

Requirements On An Adverse Action Notice

What Is Not Considered An Adverse Action?

Getting An Adverse Action Notice

An Adverse Action Under The FCRA

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