What is an adverse action notice?
An adverse action notice is the written notice a creditor must give when it denies a credit application, approves it on terms less favorable than those requested, or takes adverse action on an existing account. It tells the applicant what was decided and why. Two federal laws require it, and they require different things.
The Equal Credit Opportunity Act, implemented by Regulation B, is the source of the obligation to state the specific principal reasons for the decision. Regulation B is explicit about what will not do: a statement that the decision rested on the creditor’s internal standards or policies is insufficient, and so is a statement that the applicant failed to achieve a qualifying score on the creditor’s scoring system (12 CFR 1002.9). The Fair Credit Reporting Act adds a second set of requirements whenever the decision drew on information in a consumer report. Most declines trigger both, and a notice that satisfies only one of them is not compliant.
What information must an adverse action notice include?
The content divides cleanly along the two statutes. A complete notice covers both lists.
Required under the Equal Credit Opportunity Act
- A statement of the action taken.
- The creditor’s name and address.
- The ECOA anti-discrimination notice, in the prescribed wording.
- The name and address of the federal agency that enforces compliance for that creditor.
- Either a statement of the specific principal reasons for the action, or a disclosure of the applicant’s right to request those reasons.
Required under the Fair Credit Reporting Act, where a consumer report was used
- The name, address and telephone number of the consumer reporting agency that supplied the report.
- A statement that the reporting agency did not make the decision and cannot explain why it was made.
- Notice of the right to obtain a free copy of the report from that agency within 60 days.
- Notice of the right to dispute the accuracy or completeness of the information.
- Where a credit score was used in the decision, the score itself, the range of possible scores, the key factors that affected it, the date it was generated and the source that supplied it.
The practical failure mode is a notice that reads as one document but only carries one statute’s content — typically a clean statement of reasons with no reporting-agency block, or a complete FCRA block with reasons too generic to satisfy Regulation B.
When must an adverse action notice be sent?
Within 30 days of receiving a completed application. That is the rule most often asked about and most often answered incorrectly. Three related deadlines sit alongside it.
- Incomplete application. Within 30 days, the creditor must either notify the applicant of the action taken or send a notice of incompleteness specifying what is missing and how long they have to supply it. A counteroffer runs on a different clock: where the applicant neither expressly accepts nor uses the counteroffer, the creditor has 90 days to send the adverse action notice (12 CFR 1002.9).
- Existing account. Adverse action on an account already open — a line reduced, an account closed — carries the same 30-day notice period.
- Counteroffer. Where the creditor offers different terms and the applicant neither expressly accepts nor uses the credit, notice is due within 90 days.
If the applicant asks for the specific reasons after receiving a notice that only disclosed the right to request them, the request must be made within 60 days and the creditor must respond within 30 days.
What counts as adverse action?
Less than people assume, and the boundary matters because notices sent unnecessarily create their own problems.
A denial is adverse action. So is a termination or an unfavorable change to an existing account, and so is a refusal to grant credit in substantially the amount or on substantially the terms requested. A counteroffer the applicant accepts is not. An application the applicant withdraws is not — the obligation attaches to the creditor’s decision, not to the file being closed. A refusal because the creditor does not offer the type of credit requested is also outside the definition.
Adverse action reason codes
Reason codes are the short standardized descriptions that map to the principal reasons for a decision: insufficient income for the amount requested, delinquent past credit obligations, length of employment, value or type of collateral, and so on. Regulation B’s model forms include a sample checklist, and most systems carry some version of it.
Two rules govern their use and both are routinely missed. The reasons given must be the actual principal reasons for the decision, not the ones easiest to defend. And they must be specific: a code reading internal policy, credit score too low without the score disclosure, or did not meet our standards does not satisfy the requirement, because it tells the applicant nothing they could act on.
Where a decision came from a model rather than a human, the principal reasons are the factors that actually drove that model’s output for that applicant. A system that cannot surface them in a form a reviewer can read is a compliance problem regardless of how good the model is.
Does disclosing the credit score satisfy the ECOA requirement to give reasons?
No, and this is the single most common misunderstanding in this area.
They are two obligations from two statutes. The credit score disclosure — the score, its range, the key factors, the date and the source — is required by the Fair Credit Reporting Act. The statement of specific principal reasons for the credit decision is required by the Equal Credit Opportunity Act. The key factors that accompany a score describe what moved the score; they are not automatically the principal reasons the creditor declined the application, and supplying one does not discharge the other.
The sixty-day right to a free credit report
Where adverse action was based in whole or in part on a consumer report, the applicant has 60 days from receiving the notice to obtain a free copy of that report from the agency that supplied it. This is separate from the annual free report every consumer is entitled to, and it exists so that someone declined on the strength of a report can see what it said and dispute anything wrong in it.
The notice itself has to state this right. The FTC publishes FCRA resources covering it, and the CFPB publishes the full text of Regulation B.
Documenting adverse action notices for an examination
The obligation does not end when the notice goes out. An examiner’s question is rarely do you send notices; it is show me the notice you sent on this application, what it said, and when it went.
That means a record that ties each decision to the exact notice generated from it, the reasons stated on that notice, the delivery method and the date. Where a decision was reviewed or overridden, the record should show the reasons that were actually sent rather than the ones the model first produced. A notice that cannot be reproduced is treated, in practice, the way a notice that was never sent is treated — the same principle that governs Truth in Lending disclosure retention.
Automating adverse action notices
Volume makes manual notices untenable, and the automation question is usually framed as can the system send these for us. The more useful framing is what the system has to be able to do.
- Generate the notice from the decision record, so the reasons on the notice are the reasons in the file rather than re-entered by hand.
- Carry both statutes’ content in one document, with the FCRA block populated only where a consumer report was actually used.
- Pull the specific principal reasons through from the decisioning step, including where that step is a model — see automated underwriting and credit risk assessment.
- Handle the 30-day, 60-day and 90-day clocks as scheduled obligations rather than reminders.
- Retain the generated document with its delivery timestamp, retrievable by application.
Those are the capabilities worth testing in any system that will carry the obligation, and there is one test that answers most of them at once: ask to see a notice produced end to end from a real declined application — the reasons pulled through from the decision, both statutes’ content on one document, and the delivered copy retrieved afterward with its timestamp. A feature list will not tell you whether that works.
Vergent generates adverse action notices through workflows the lender configures: the lender defines the workflow for declined applications and the reason codes it uses, and notices are produced from that configuration. It is set up rather than automatic, and the setup deserves care — the reason codes defined at configuration are the reasons that will appear on every notice afterward, so the specificity requirement above is settled at that moment rather than later. The wider compliance tooling is described on the lending compliance software page.
Frequently asked questions
What is an adverse action notice?
A written or electronic notice a creditor must give when it denies a credit application, approves it on less favorable terms than requested, or takes adverse action on an existing account. It explains what was decided and why, and it is required by the Equal Credit Opportunity Act and, where a consumer report was used, by the Fair Credit Reporting Act.
When must an adverse action notice be sent?
Within 30 days of receiving a completed application. The same 30-day period applies to adverse action on an existing account and to notifying an applicant that an application is incomplete. Where a counteroffer is made and the applicant neither accepts nor uses it, notice is due within 90 days.
What information must an adverse action notice include?
The action taken, the creditor’s name and address, the ECOA anti-discrimination notice, the name and address of the federal agency that enforces compliance, and either the specific principal reasons for the decision or a statement of the applicant’s right to request them. Where a consumer report was used, the notice must also identify the reporting agency, state that it did not make the decision, and explain the rights to a free report and to dispute.
Does disclosing the credit score satisfy the ECOA requirement to give reasons?
No. These are two separate obligations. The credit score disclosure comes from the Fair Credit Reporting Act; the statement of specific principal reasons comes from the Equal Credit Opportunity Act. The key factors supplied with a score are not automatically the principal reasons for the credit decision, and supplying one does not discharge the other.
How many days does a consumer have to request a free credit report after adverse action?
60 days from receiving the adverse action notice. That right comes from the Fair Credit Reporting Act and applies when the decision was based in whole or in part on information in a consumer report.
What are adverse action reason codes?
Short standardized codes that map to the specific principal reasons a decision was made, such as insufficient income for the amount requested or delinquent past credit obligations. They must describe the actual principal reasons. A generic code such as internal policy or did not meet our standards does not satisfy the requirement.
Is a notice required when a borrower withdraws an application?
No. Withdrawal by the applicant is not adverse action. The obligation attaches to the creditor’s decision, so a file closed because the applicant walked away is treated differently from one the creditor declined.
Does an adverse action notice have to be in writing?
It must be in writing, but it may be delivered electronically where the consumer has consented under the applicable electronic disclosure rules. Oral notice is permitted only in narrow circumstances for creditors with low application volume.
Not legal advice. This page explains published federal law for general information. It is not legal advice and is not a substitute for guidance from qualified counsel; rules are amended and the facts of a particular loan matter. Primary sources: Regulation B, 12 CFR Part 1002, published by the Consumer Financial Protection Bureau.
