Adverse Action Notification

Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.

The term "adverse action" is defined very broadly by Section 603 of the FCRA.  “Adverse actions” include all business, credit, and employment actions affecting consumers that can be considered to have a negative impact as defined by FCRA 15 U.S.C. § 1681 et seq.: Section 603(k). This includes denying or canceling credit or insurance, denying employment or promotion, denying a rental application, increasing a security deposit or rent, or requiring more restrictive lease terms because of a report.  No adverse action occurs in a credit transaction where the creditor makes a counteroffer that is accepted by the consumer.

If a user takes any type of adverse action as defined by the FCRA that is based at least in part on information contained in a consumer report, Section 615(a) of the FCRA requires the user to notify the consumer. The notification may be done in writing, orally, or by electronic means and must include:

• The name, address, and telephone number of the CRA (including a toll-free telephone number, if it is a nationwide CRA) that provided the report.
• A statement that the CRA did not make the adverse decision and is not able to explain why the decision was made.
• A statement setting forth the consumer’s right to obtain a free disclosure of the consumer’s file from the CRA if the consumer makes a request within 60 days.
• A statement setting forth the consumer’s right to dispute directly with the CRA the accuracy or completeness of any information provided by the CRA.

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Section 607(e) requires any person who obtains a consumer report for resale to take the following steps:

• Disclose the identity of the end-user to the source CRA.
• Identify to the source CRA each permissible purpose for which the report will be furnished to the end-user.
• Establish and follow reasonable procedures to ensure that reports are resold only for permissible purposes, including procedures to obtain:
• The identity of all end-users.
• Certifications from all users of each purpose for which reports will be used.
• Certifications that reports will not be used for any purpose other than the purpose(s) specified to the reseller. Resellers must make reasonable efforts to verify this information before selling the report.

Continue to Reinvestigation, Disclosures, Disposal of Consumer Information, or jump to a different article.

1. Fundamentals of The Fair Credit Reporting Act (FCRA)
2. Industry Players Under FCRA
3. Accuracy and Reasonable Procedures
4. FCRA Permissible Purpose
5. Adverse Action Notification
6. Reinvestigation, Disclosures, Disposal of Consumer Information
7. What is a Consumer Report?
8. A summary of consumer rights under FCRA
9. FCRA Litigation
10. State Versions of FCRA and FCRA California