May 2009 - Feature
Tackling Adverse Action Notices
Knowing what triggers an adverse action notice can definitely be baffling, but so can the rules governing content and timing. Legal expert weighs in with part II of PSFI’s series on adverse action notices.
By Jim Ganther
Content of the FCRA
Notice
The FCRA portion of the adverse action notice has two parts.
First, it must identify and provide contact information for the credit
reporting agency which provided the credit report. The agency’s mailing address
and toll-free telephone number must also be included. Adding the Website
address is also recommended, as many consumers find it easier to request a file
disclosure online.
Second, the FCRA requires that adverse action notices
include these specific disclosures:
· That the credit decision was based wholly or in
part on the information contained in the report issued by the credit reporting
agency.
· A statement that the credit reporting agency did
not make the credit decision and is unable to provide the consumer with the
specific reasons for the actions taken.
· A statement that the customer has a right to
obtain a free copy of his or her credit report from the credit reporting agency
if a request is made within 60 days of receiving the notice.
· A statement that the customer has the right to
question the accuracy or completeness of the information in his or her credit
report.
If a credit decision was made wholly or in part on
information obtained by a third party, this fact must also be stated.
Third-party information may include assessments of the customer’s credit
worthiness, credit standing, character, and more.
In addition, a statement must be included that the customer
may, within 60 days of receipt of the notice, make a written request for the
disclosure of the nature of this information. The creditor must respond in
writing within 30 days of receipt of the request.
Procedures should also be established for addressing an
incomplete credit application, as the issuance of a notice may depend on
whether an application was submitted. The dealer may, within 30 days of receipt
of an incomplete application, issue either an adverse action notice or a
“notice of incompleteness.” If the dealer uses a notice of incompleteness, it must
request in writing the required additional information, and must provide a
reasonable timeframe for the customer to respond. It must also state that the
request for credit will not be considered until the missing information is
provided.
Timely Notices And
Recordkeeping
As for timing, an adverse action notice must be sent within
30 days of receiving the application if the dealer cannot arrange for the
requested financing. If a counteroffer is deemed unacceptable by the customer,
the notice must be sent to the customer 90 days after delivering the
counteroffer.
In the case of incomplete applications — and no notice of
incompleteness is sent — the adverse action notice must be sent to the customer
within 30 days of receipt of the incomplete application.
There are also rules governing how long a customer’s
personal information must be stored after an adverse action notice is issued.
The ECOA requires a customer’s information be kept on file for 25 months after
a customer is notified of a credit approval, adverse action, or application
incompleteness.
The retention period generally starts around the time the
purchase-related activity occurs. However, in the case of a missing information
request, the period may start well after the initial contact with the customer.
Additionally, if a dealership is under investigation or
subject to an enforcement proceeding related to the ECOA or Reg. B, it must
retain all customer records until the matter is resolved or the court grants
permission for disposal.
The record retention obligation also applies to credit
applications that are withdrawn. Credit approvals also fall under the retention
mandate, even when the consumer did not complete the transaction.
The FCRA does not impose record retention requirements.
However, it is suggested that these records also be maintained since the FCRA
allows claims to be filed five years after the date of an alleged violation.
With today’s credit crisis, understanding the rules and
regulations governing adverse action notices is crucial. Just remember to check
with competent legal counsel to make sure your compliance processes aren’t met
with any adverse actions.
Jim Ganther is the cofounder and president of Mosaic
Interactive LLC, a provider of Web-based compliance programs. He can be reached
at jim.ganther@bobit.com.