March 2009 - Feature
Tackling Adverse Action Notices
Adverse action notices continue to raise questions among dealers and F&I managers. This issue kicks off a two-part series on meeting obligations set forth under the ECOA and the FCRA.
By Jim Ganther
There’s no doubt about the importance of compliance under today’s
economic environment, as both regulators and financial institutions look to
correct the missteps of recent years. This situation puts an extra emphasis on
the one requirement that continues to raise questions among dealers — adverse
action notices.
Both the Fair
Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA) require
dealerships to provide adverse action notices to their customers under certain
circumstances. Adverse action requiring such a notice means the denial of a
request for credit relative to the dollar amounts, annual percentage rate
(APR), and terms contained in the verbal or written application. There are
three conditions under which the ECOA requires the issuing of an adverse action
notice:
■ Based on the information provided in a credit
application, whether received in person or by telephone, a dealer cannot find a
lending source willing to accept assignment of the installment sale agreement.
■ A vehicle is spot delivered and no funding
source will accept the original terms of the deal, unless the dealer, customer,
and lending source agree to different terms.
■ The deal is
based on specific credit terms and the customer rejects a counteroffer. An
adverse action notice is not required if the finance company accepts the terms
of the credit under the conditions agreed to by the customer. A notice is also
not required in cases where a counteroffer is made — representing terms and
conditions that differ from the original deal — and the customer accepts.
As for the FCRA,
there are two conditions under which an adverse action notice must be issued:
■ The information used in a credit report is
the basis for denying the customer’s credit.
■ The information
provided by a party other than a credit reporting agency, such as an employer
or landlord, is the basis for denying credit.
In such cases, additional notification information required by the FCRA
must be provided to the customer. It is permissible to combine the notice
information mandated by the ECOA and the FCRA in one form.