Mortgage concepts: How to give notice of adverse action

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Mortgage Concepts is a recurring video series covering best practices and compliance training for mortgage originators in California. This video discusses guidelines for issuing the Notice of Adverse Action / Notice of Action taken under both the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). To get course credit for renewing your NMLS license, visit firsttuesday.us.

In case of refusal: the notice of adverse action

If the loan is denied, instead of being approved, the FCRA requires that the loan originator disclose the adverse action.

Differentiate from the notice of action undertaken by the ECOA

The FCRA requires that any principal who takes adverse action against a consumer on the basis of any information contained in a consumer report provide the consumer with a adverse action notice. Remember from the last unit that the ECOA also requires an adverse action notice (called the notice of action taken). The disclosure requirements are both based on adverse action, but the disclosures required are not the same!

ECOA requires notice of adverse action at any time credit is refused, terminated or altered in a manner unfavorable to the consumer. The notice of action taken under the ECOA requires disclosure of the specific reasons for the denial of credit. ECOA notice of action taken, combined with the demographic information to be collected under the ECOA, is used to determine whether there is a pattern of illegal discrimination.

In contrast, the FCRA’s notice of adverse action is based on a denial, termination or adverse modification of the credit granted in connection with the use of consumer credit information. FCRA adverse action notice does not require specific reasons for denial of credit, but does require disclosure of factors that negatively impact the credit rating used in the credit decision. The purpose of FCRA disclosures is to educate consumers about the credit information used, so that they can dispute any inaccuracies.

The disclosure requirements for each are independent of each other, although most loan originators and lenders provide the disclosures on the same form and / or at the same time. The annex to ECOA Regulation B even provides an example of a form that fulfills the disclosure requirements of both laws. For residential mortgages, both disclosures will apply.

Adverse action triggering disclosure

The definition of adverse action under the FCRA is the same as the definition of adverse action under the ECOA:

For the purposes of the mortgage arrangement, a adverse action is a denial or revocation of credit, a change in the terms of an existing credit agreement, or a denial to extend credit for the substantial amount or on the substantially required terms. [15 USC §1681a(k)(1)(A); 15 USC §1691(d)(6)]

A adverse action does not include:

  • refusal to extend additional credit under an existing credit agreement when the applicant is in default or in default; Where
  • refusal to grant additional credit that would exceed a previously established credit limit. [15 USC §1691(d)(6)]

Period of notice

The FCRA does not set a specific deadline for communicating the notice of adverse action to the consumer. However, the ECOA requires that notice of action taken be provided within 30 days of receipt of a completed loan application. Since FCRA and ECOA notices of adverse action are usually sent in the same document, the 30-day deadline is a good rule of thumb.

FCRA disclosures required

A person who takes adverse action against a consumer based on information found in the consumer’s credit report provided by a consumer reporting agency must provide:

  • the credit rating or credit ratings on which the adverse action is based;
  • the range of possible credit scores depending on the model used;
  • the date the credit score was created;
  • the name of the person or entity that provided the credit score; and
  • up to four key factors that have affected the credit rating (five, if one of the key factors is the number of requests);
  • the name, address and telephone number of the consumer information agency that provided the report to the person taking the adverse action;
  • a statement that the consumer information agency has not made the decision to take the adverse action and is unable to provide the consumer with the specific reasons why the adverse action was taken;
  • a disclosure of the consumer’s right to receive a free copy of the consumer’s report upon which the adverse action is based within 60 days of receipt of the notice; and
  • a disclosure of the consumer’s right to challenge the accuracy or completeness of the information contained in the consumer credit report. [15 USC §1681m(a); 15 USC §1681g(f)(1)]

When adverse action is taken on the basis of information from an external source other than a consumer information agency, a creditor must provide the disclosure in section 615 (b). This rule also applies where the creditor obtains from an affiliate information other than a consumer report or other than information regarding the affiliate’s own transactions or experiences with the consumer. [12 CFR § 1002.9]


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