Jump to Section
What is an Adverse Action Notice?
An adverse action notice is a notice required under the Equal Credit Opportunity Act that requires creditors to advise applicants of a denied loan and which items on their credit report resulted in the denial. It works in conjunction with Fair Credit Reporting so that consumers know what negative things on their credit history contributed to their rejection.
Purpose of an Adverse Action Notice
The purpose of an adverse action notice is to notify consumers why they were denied credit when applying for a credit card or any other type of loan. They are necessary because consumers have fair credit reporting rights that the federal government protects. The ECOA requires adverse action notices, so applicants know why they were denied credit.
While the adverse action notice gives consumers specific reasons for denial, they do not provide a comprehensive copy of the credit report. If you want a copy of your full credit report, you need to request it separately. When a negative item is cited on an adverse action notice, applicants can contact the consumer reporting agency (CRA) that reported the negative item if they believe the information on their report was placed there in error.
Adverse action notices can also give consumers vital information about why they were offered risk-based pricing. A factor in risk-based pricing is if an applicant has less-than-perfect credit, they can be offered more expensive terms on their loan documents or loan agreements . Other factors in this pricing include income, employment history, and debt-to-income ratio.
These terms might include one of the following:
- Higher interest rates
- Shorter loan terms
According to the Federal Trade Commission (FTC), risk-based pricing should be based at least in part on a customer's creditworthiness. Applicants have the opportunity to deny loan terms in favor of improving their credit to secure more favorable terms to their financial situation.
Adverse action notices allow consumers to easily access the information they need to make sound financial decisions. This contributes to improved financial health, stability, and wellness across the board.
If an item on an adverse action notice is suspected to be incorrect and consumers cannot resolve the problem with the CRA, finance lawyers can help. Their extensive knowledge of fair credit practices and workflows that can be used to remove inaccurate information from credit reports is valuable to consumers looking to get better terms on their loans.
Check out this article to learn more about the purpose of adverse action notices.
What's Included in an Adverse Action Notice?
Adverse action notices are vital documents that give consumers important information about how their creditworthiness contributed to a loan denial or unfavorable risk-based pricing.
Here is a rundown of the different parts of an adverse action notice:
Credit Score
If your credit score was a contributing factor to the lender's decision, it must be listed on the adverse action notice. Items such as payment history, debt-to-income ratio, and amount of credit used are all examples of factors that impact credit scores. Reporting agencies also calculate the score based on your oldest account and how many accounts you have in good standing.
Name, Address, and Phone Number of Credit Reporting Agency
Credit reporting agencies play an essential role in determining whether a loan can be approved. Lenders may use results from one or more agencies to decide whether to approve your request.
There are three major credit reporting agencies that most lenders use to make their decision:
- Experian
- Equifax
- TransUnion
Lenders must include contact details for any CRA they use to make their decision.
Reasons for Denial
Specific reasons that your loan was denied must be included in your adverse action notice. These notices do not have a specific number of reasons they have to disclose, but generally they do not contain more than four reasons for denial.
Here are some examples of denial reasons on adverse action notices:
- Too many accounts in poor standing
- Insufficient credit history
- Late payments
- A credit score below acceptable threshold
- Excessive debt-to-income ratio
- Charge-off or collection accounts
Notice of Your Right to Obtain a Credit Report
Generally, each American has a legal right to obtain a copy of their credit report up to once a year from each credit reporting agency free of charge. When you receive an adverse action notice, you can get an additional copy of your credit report for 60 days from the date on the notice.
There is no limit on the number of credit reports you can request in response to an adverse action notice. These rights must be clearly stated on every adverse action report.
Notice of Your Right to Challenge the Accuracy of Negative Items
If you believe an item on your credit report is inaccurately reported or incomplete, you can dispute it with the credit reporting agency. You can do so in writing at any time. The major credit reporting agencies also have dispute portals on their websites.
Here is an article about what should be included in every adverse action notice.
Image via Pexels by RODNAE
Why People Receive Adverse Action Notices
People receive adverse action notices to formally notify them of negative items on their credit report that contributed to a denial from a lender. Adverse action notices must include a minimum of four negative items that caused the rejection. If any of these factors are related to your credit report's number of hard inquiries, they must state the specific reason for denial.
Hard vs. Soft Inquiries
Hard inquiries occur when a lender runs your credit report to apply for credit or a loan and negatively impacts your credit score. To run a hard inquiry, lenders must have your written consent to do so.
On the other hand, soft inquiries are typically used to obtain preapproval of a loan. They do not have any impact on your credit score, and they can be legally obtained without your written consent.
Situations that Don't Warrant an Adverse Action Notice
In some cases, your loan may be denied for other reasons, but the scenario does not warrant an adverse action notice.
Here are some examples of these conditions:
- You do not meet the minimum age requirements to obtain a loan per the lender's terms and conditions.
- Your application is incomplete.
Learn more about why people receive adverse action notices by checking out this article.
Responding to an Adverse Action Notice
If you feel any items on your adverse action notice are incorrect or incomplete, the best way to respond is by working directly with the credit reporting agency that provided the information. After all, adverse action notices only exist to alert you about reporting agencies' items that negatively impact your ability to get a loan.
One of the easiest ways to respond to an adverse action notice accurately is to hire finance lawyers. Since the process of disputing accounts can get complicated, it's never a bad idea to have a professional in your corner to support you through the process. You may need to jump through many legal hoops, such as sending written proof of inaccuracies or incomplete information.
Also, if you send a dispute that is worded in a way that doesn't protect you, you could be on the hook to get sued for a debt that was previously past the statute of limitations. Post a project on ContractsCounsel today to connect with finance lawyers who can help you accurately and effectively respond to an adverse action notice today.
Meet some of our Adverse Action Notice Lawyers
September 6, 2023
Christian D.
Christian Davila received his Juris Doctorate from St. Mary’s University and becoming a member of the State Bar of Texas in 2013. Before law school, he studied at Texas A&M International University (TAMIU), and participated in multiple programs across various fields of study, including the University of Texas Medical Branch-School of Medicine’s “Early Medical School Acceptance Program,” and the Hispanic Association of Colleges & Universities’ “National Internship Program” at the Library of Congress in Washington, D.C. Christian’s legal experience includes criminal law (both prosecution and defense), family law, transactional law, business litigation, real estate litigation, and general civil litigation. Christian was previously in-house counsel for a multi-million dollar apartment construction and management company, handling all property acquisition, document drafting, negotiations, and litigation. Christian is a former member of the American Association for Justice (formerly the Association of Trial Lawyers of America), and he has been distinguished by the National Trial Lawyers as one of their TOP 40 Civil Plaintiff attorneys in Texas UNDER 40 years old. He likes weightlifting, reading comicbooks, and being silly with his kids in his spare time.
September 6, 2023
Kahlee S.
I opened Hestia Legal when I was 6 months pregnant with the focus on educating and assisting families in my community. While the majority of my practice revolves around Estate Planning, I have a history of experience with contract and general business agreement drafting, discovery drafting, and general litigation document drafting.
September 6, 2023
Nadir C.
I am a licensed attorney in Illinois, I am currently a Regulatory Compliance Analyst.
September 11, 2023
Torrey L.
Torrey Livenick, Esq. is a fourth generation Colorado lawyer. Although she was born in California and raised in Nevada, she spent every summer in Colorado and knew she planned to make Denver her home. After graduating from Bryn Mawr College with a degree in Classical Culture and Society, she returned to Las Vegas to work as a paralegal. Once she spent five years building her skills and confirming her interest, she attended Emory University School of Law. Torrey’s interests include trivia (she even was a contestant on Jeopardy! during her law school days), video games, playing with her cats, and the arts. She is active in pro bono organizations including Metro Volunteer Lawyers.
September 6, 2023
Peter H.
Haber Law Firm, APC, is a transactional business law firm with a focus on small/mid-market business purchases and sales, outside general counsel, and start-up assistance for businesses in their early stages. Peter Haber started Haber Law Firm, APC after several years as a legal executive at Popcornopolis, a gourmet popcorn brand sold at groceries and stadiums nationwide. In this role, Peter served as the company’s sole in-house legal advisor as it related to all functions of the company’s operations, including dispute resolution, compliance, and employment law, to name a few. With his help and guidance, the company relocated its entire corporate and manufacturing operation, developed a new factory and warehouse, and was successfully acquired by private equity. Prior to this, Peter was a litigator and business attorney with distinguished Los Angeles litigation boutiques. Such matters included the representation of numerous businesses in litigation and in the resolution of pre-litigation disputes as well as the representation of professionals in liability defense matters, including hospitals, physicians, and brokers.
September 7, 2023
Kyle T.
Obtained J.D. in December 2021, admitted to the Indiana Bar in November 2022. Began working as a clerk for civil defense firm in March 2022 and have been the same firm to the present, currently working as an Associate Attorney.
September 7, 2023
Sashi S.
Credible history in navigating complex legal landscapes to deliver strategic solutions that optimize employee benefits programs and healthcare compliance. Demonstrated mastery in interpreting and applying ERISA, HIPAA, and ACA regulations, safeguarding client interests, and minimizing legal risks. Remarkable background in advising diverse clientele, ranging from corporations to healthcare providers, on intricate regulatory frameworks, compliance strategies, and litigation support. Adept at crafting innovative strategies, providing expert guidance, and driving compliance with unwavering precision. Skilled in leveraging unique skill set that combines medical knowledge and technological proficiency to address multifaceted challenges at intersection of healthcare and technology. Exceptional project management skills with track record of contributing to high-impact initiatives. Accomplished in drafting and negotiating contracts, mitigating legal risks, and streamlining processes.
Find the best lawyer for your project
Browse Lawyers NowQuick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.
View Trustpilot ReviewHow It Works
Financial lawyers by top cities
- Austin Financial Lawyers
- Boston Financial Lawyers
- Chicago Financial Lawyers
- Dallas Financial Lawyers
- Denver Financial Lawyers
- Houston Financial Lawyers
- Los Angeles Financial Lawyers
- New York Financial Lawyers
- Phoenix Financial Lawyers
- San Diego Financial Lawyers
- Tampa Financial Lawyers
Adverse Action Notice lawyers by city
- Austin Adverse Action Notice Lawyers
- Boston Adverse Action Notice Lawyers
- Chicago Adverse Action Notice Lawyers
- Dallas Adverse Action Notice Lawyers
- Denver Adverse Action Notice Lawyers
- Houston Adverse Action Notice Lawyers
- Los Angeles Adverse Action Notice Lawyers
- New York Adverse Action Notice Lawyers
- Phoenix Adverse Action Notice Lawyers
- San Diego Adverse Action Notice Lawyers
- Tampa Adverse Action Notice Lawyers
Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.
View Trustpilot ReviewI never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.
View Trustpilot ReviewI got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.
View Trustpilot Review