QUESTION
We were cited for not fulfilling the requirements for adverse action. This came as a real shock to us because we relied on our LOS for the information from the credit bureau and our own compliance attorney to provide the procedures. This is really unusual for us, as we are a bank and have never previously been cited for this infraction. We conferenced about it and decided to ask for your guidance. We want to know what are our obligations in adverse action circumstances?
ANSWER
When a creditor takes any adverse action with respect to a consumer in connection with a credit transaction that is based, in whole or in part, on any information contained in a consumer report from a consumer reporting agency, it is incumbent on the creditor to implement certain procedures.
Below, I set forth the three primary obligations.
1. Provide the consumer oral, written, or electronic notice of the adverse action;
2. Provide the consumer, orally, in writing, or electronically, with:
a. The name, address, and telephone number of the consumer reporting agency that furnished the report. If the agency compiles and maintains files on consumers on a nationwide basis, a toll-free number established by the agency must be provided and
b. A statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to comment on the specific reasons why the creditor took the adverse action; and
3. Provide the consumer, orally, in writing, or electronically, with a notice of the consumer’s right to:
a. Obtain a free copy of his or her consumer report from the consumer reporting agency that furnished the report, and the notice must indicate the sixty-day period under the Fair Credit Reporting Act (FCRA) within which the consumer may obtain the free consumer report as a result of the adverse action; and
b. Dispute with the consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency. [15 USC § 1681m(a)]
Please note that the disclosure requirement addressed in the response to this question applies to an adverse action taken, in whole or in part, based on consumer report information obtained from a consumer reporting agency. But there are many variations, such as where there is a denial or increase in the cost of credit that is not based on a consumer reporting agency, or where the adverse action is based on an affiliated party that is not a consumer reporting agency.
Procedures for properly implementing adverse action should take into consideration the full range of possibilities and variations.
Jonathan Foxx
Managing Director
Lenders Compliance Group
