Have you ever applied for a loan and been denied? If so, you probably received what’s known as an adverse action notice. Adverse action notices are required by law to explain why you were denied credit.
What is an Adverse Action Notice?
An Adverse Action Notice is a formal notice that informs an individual that they have been rejected for a loan or credit cardor when they are offered less favorable Loan terms based on information on their Credit Report. The notice must outline the specific reasons why the applicant was rejected, as well as their right to know the name, address, and phone number of the credit reporting agency that provided the information used in the decision-making process.
An Adverse Action Notice must contain the following information:
- The name, address, and phone number of the Credit Reporting Agency (CRA) that supplied the Credit Report used in the decision.
- A statement that the CRA did not make the decision to take the adverse action and is not responsible for the adverse action.
- The consumer’s right to get a free copy of their Credit Report from the CRA within 60 days.
- The consumer’s right to dispute the accuracy or completeness of any information in their Credit Report with the CRA.
- The notice must also contain other specific information as required by law.
What are the consequences of an Adverse Action Notice?
Not all lenders follow the same process for providing Adverse Action Notices. Some may choose to send the notice electronically while others may opt for a physical letter. No matter how you receive your Adverse Action Notice, it’s important to understand what this form entails and the potential consequences that can follow.
Once an applicant receives an Adverse Action Notice, they have several options available to them. They can choose to do nothing, in which case they will likely not be approved for the loan or credit card. Additionally, applicants can contact the credit reporting agency to dispute any incorrect information that may have been used in the decision-making process. Finally, applicants can also re-apply for the loan or credit card once they have corrected any errors on their credit report.
The consequences of an Adverse Action Notice can vary depending on the situation. In some cases, applicants may simply be required to provide additional information before being approved for a loan or credit card. However, in other cases, applicants may be permanently rejected for financing. It’s important to carefully review your Adverse Action Notice and contact a professional if you have any questions about your next steps.
Adverse Action Notices are not required for every negative decision made by a creditor. For example, if you are late on a payment, the creditor does not have to send you an Adverse Action Notice.
Who is affected by an Adverse Action Notice?
An Adverse Action Notice affects anyone who has applied for a loan and been denied. The notice will detail the specific reasons for the denial, which can help the applicant make any necessary changes and reapply.
It’s important to note an Adverse Action Notice is different from a standard rejection letter. A standard rejection letter simply states an application has been denied, but does not provide any specific reasons why. An Adverse Action Notice, on the other hand, is required by law to provide the applicant with specific reasons for the denial so they can take any necessary steps to improve their chances of approval.
How can I avoid an Adverse Action Notice?
There are a few things you can do to avoid an Adverse Action Notice:
- Use a soft inquiry when shopping for rates. This way, multiple lenders can give you rate quotes without affecting your credit score.
- If you have to apply for a loan, do it within a short timeframe. Having multiple inquiries on your report within a short period of time can lower your score.
- Get pre-qualified for a loan before you start shopping. This will give you an idea of what interest rate you can expect and help you avoid being declined for a loan.
How can I appeal an Adverse Action Notice?
If you receive an Adverse Action Notice related to a loan application, it means the lender has taken negative action against you based on information in your credit report. Yf you believe the adverse action was taken in error, or that there are extenuating circumstances that should be considered, you can contact the lender directly to discuss your options. You have the right to appeal the decision, and the lender must provide you with information on how to do so.
You may also want to consider ordering a free copy of your credit report from AnnualCreditReport.com to check for accuracy and to identify any potential errors that may have led to the adverse action.
What are the time limits for an Adverse Action Notice?
An Adverse Action Notice must be sent within 30 days after the creditor takes the adverse action.
What other actions can be taken after an Adverse Action Notice?
In addition to taking out a loan, other actions that may be taken after receiving an Adverse Action Notice include:
- Applying for a credit card
- Opening a new bank account
- Applying for a new job
- Renting an apartment or house
How can I find out more about Adverse Action Notices?
If a company denies you credit, insurance, or employment – or takes another “adverse action” against you – because of information in your credit report, the company must tell you, and give you the name and address of the credit bureau that provided the report. The notice also must explain why you were denied credit or insurance, if that’s the case. If you are denied employment, the notice will tell you whether the denial was because of information in your background report.
The FCRA requires companies that take adverse action against consumers based on information in a consumer report to notify both the consumer reporting agency (CRA) and the consumer. Adverse actions include:
- Denial of credit
- Denial of insurance
- Employment termination
- Denial of housing
- Refusal to provide a rental car
Whom can I contact for more information about Adverse Action Notices?
The Adverse Action Notice will explain why you were denied the loan and will provide information about the specific credit reporting agency that was used to make the decision. You have the right to dispute the accuracy of the information contained in your credit report, and you should do so if you believe that it is inaccurate.
If you have any questions about Adverse Action Notices or your rights under the FCRA, you can contact the Consumer Financial Protection Bureau or a attorney specializing in consumer protection law.