When are we required to provide an adverse action notice under ECOA?
In answering this question it is important to understand the definition of an application for Equal Credit Opportunity Act (“ECOA”) purposes. Under Regulation B, the implementing regulation to ECOA, an “application” means an oral or written request for an extension of credit made in accordance with procedures used by a creditor for the type of credit requested. Thus, for ECOA, if a creditor obtained enough information to make a credit decision and it has been submitted in a format normally used by the creditor, the creditor must treat this as an application.
With regard to adverse action notices, Regulation B requires a creditor to provide an adverse action notice in the following instances:
• If the creditor takes adverse action on a completed credit application, the creditor must provide an adverse action notice within 30 days of receiving the complete credit application;
• If the creditor takes adverse action on an incomplete credit application, the creditor must provide an adverse action notice within 30 days of receiving the incomplete credit application;
• If a creditor takes adverse action on an existing credit account, the creditor must provide an adverse action notice within 30 days of taking action on the credit account; or
• If a creditor makes a counteroffer to a credit application and the applicant does not accept the counteroffer, the creditor could either provide a combined counteroffer and adverse action notice at the time of the counteroffer or send a separate adverse action notice within 90 days of making the counteroffer if the applicant does not accept the counteroffer.
As an example, if a creditor pulls a credit report on an applicant and determines based on consumer’s FICO score that they would not qualify for a loan and relays this information to the consumer or otherwise discourages the consumer from proceeding with a loan application, the creditor must issue an adverse action notice to the consumer within 30 days.