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
Let’s say a credit application is shopped with two or more lending
sources, as is generally the case. Here are three scenarios where an adverse
action notice is required:
Scenario 1: A request for credit is sent to three sources. Two deny the
request, but one will accept it on terms unacceptable to the selling dealer.
The dealer elects not to do the deal, in effect denying the credit. Since the
dealer decided not to offer credit, the dealer is responsible for issuing an
adverse action notice. (It is likely the two credit sources who denied the
credit would send notices as well.)
Scenario 2: A request for credit is sent to three sources, and all three
decline the request for credit. While all three of the lending institutions
should issue notices, the dealer cannot rely on their notices to meet the
dealer’s obligation. That’s why a dealer should also issue an adverse action
notice. (There is no prohibition against issuing duplicate notices.)
Scenario 3: A request for credit is sent to three sources. Two decline the
request and one accepts the request based on the terms agreed to by the
customer. Since the creditor accepted the terms agreed to by the customer (and
the transaction is consummated), the dealer is not required to issue an adverse
action notice. The creditors denying the credit would probably issue notices,
as they would not know the consumer received financing from another lending
source.
These three scenarios should give you a good idea of when an adverse
action notice is necessary. Meeting the obligations of the ECOA and the FCRA
will help your dealership remain compliant at a time when the future of the
powersports industry is unclear. The one thing the industry can count on is the
role compliance will play going forward.
Jim Ganther is the
co-founder and president of Mosaic Interactive LLC, developer of Web-based
legal compliance programs for automotive, RV and powersports dealers. He can be
reached at jim.ganther@bobit.com.