Credit Report Problems

Credit Report Problems

What is an Adverse Action Notice?

The simplest definition of an adverse action notice is that it provides individuals with more information on why they had an application denied. A notice applies to both credit denials and employment background checks.

Adverse Action Letters and Credit Applications

Due to the Fair Credit Reporting Act (FCRA), consumers who apply for credit have the right to find out why a creditor took adverse action on the application. In other words, whenever a potential creditor reviews your credit report and denies your credit application, the company must send you an adverse action letter.

This letter must do either one of two things in order to be a proper adverse action notice. The letter must either:

  • Specifically tell the consumer what the issues were on the credit report that caused the denial AND identify the credit reporting agency used, OR
  • It must tell the consumer the name of the credit reporting agency used and inform the consumer that they can mail in a request to find out the specific reasons for the denial.

There are 6 important aspects to the adverse action notice process:

  • The application must be for credit.
  • There is adverse action on the application.
  • The adverse action is being taken, at least in part, because of information on a credit report.
  • The adverse action letter is sent promptly after the application decision.
  • The adverse action notice identifies the credit reporting agency utilized.
  • Either the reasons for the denial are given OR the consumer is advised on how to obtain these reasons.

The above notice requirements also apply when a current creditor is considering increasing or decreasing a credit line. Some creditors regularly check your credit report. When this occurs, it appears as an “account review inquiry” on your credit report. If the creditor decides to decrease your credit line or close it altogether, the creditor must comply with the requirements above.

Adverse Action Notices and Employment Background Checks

Adverse notice requirements also apply to employment background checks, but the process is a little more elaborate than with credit applications. The adverse action notice must still identify the credit reporting bureau and the reasons for the denial—or how to get the reasons.

However, more requirements apply to adverse action letters when a background check or credit check is run for employment reasons. If the report comes back with information that may cause denial of employment, the potential employer must send a pre-adverse action notice.

It’s imperative that potential employers send this pre-adverse action notice before rejecting the application. The pre-adverse action letter warns the applicant of the potential denial and provides them with a copy of the report. Unlike credit applications, adverse action notices for employment purposes must include a copy of the report itself.

This provides the person applying for the job a chance to correct what may be wrong. If after providing the pre-adverse action notice, the employer decides to deny employment, the employer must deliver an adverse action notice that contains all of the elements described above for a credit denial.

It’s important to note that this situation doesn’t just pertain to someone applying for a job. It also applies when an individual already works for a company but is going for a promotion that requires a background check.

Questions about the Adverse Action Notice Requirements? Contact Us!

It’s important for consumers to understand their rights regarding credit applications, background checks, and adverse action letters. If creditors or employers fail to comply with any of the above criteria, this constitutes a violation of the Fair Credit Reporting Act.

Learn more about your rights here.

If you have any questions about adverse action notices, don’t hesitate to call us at (888) 822-1777 or fill out our contact form today.