What To Do When You Receive An Adverse Action Notice

Our society runs on credit and credit reports. In general, credit is used to buy goods and services today and pay for them tomorrow, but credit and credit reports are also involved in many other situations that may surprise you. Did you know you can be denied credit based on information included in your credit report? If that happens, you should receive an adverse action notice from the creditor that rejected your application. 

Credit reports are commonly used to determine:  

• Credit card applications,  
• Housing and rental opportunities,  
• Insurance eligibility,  
• Mortgage and auto loan terms, and 
• Interest rates, length of a loan, and purchase prices in consumer loans, among other credit-related situations.
    

Inaccurate credit information can weaken or destroy your ability to obtain credit. Even if you do qualify for credit, reporting errors and inaccuracies can cost you thousands of dollars over the length of just one loan. To protect your rights, you must ensure the information in your credit report is correct by reviewing your reports regularly. You can request a free credit report from the three main credit reporting agencies at AnnualCreditReport.com each year.  

When you apply for credit if the potential creditor or lender uses your credit report to make a decision that negatively impacts you, they must send a notice of adverse action to explain the decision. Upon receiving this notice, you have another right to review a free copy of your credit report from the credit bureau that provided the negative information to the creditor. 

Let’s Start with the Basics: What is an Adverse Action Notice? 

If you apply for a credit card, mortgage, car loan, insurance, an apartment rental, or another situation where your credit history is relevant, the creditor may request and review your credit report. If you are denied credit because of information contained in your credit report, you must receive a specific notice from the lender, insurer, or landlord.  

A notice of adverse action is a letter that explains why your application has been denied. Or if you are approved, why the terms may be less favorable than originally offered. The notice must specify the reason for the adverse decision, as well as which credit reporting agency or agencies provided the information the creditor used to make its decision. 

When Does a Creditor Have to Send this Notice? 

Under the federal Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA), a creditor must send an adverse action notice whenever the following happens: 

• Your application for credit is denied.
• Your application for credit is adversely approved. For example, if you apply for a 0% interest rate loan, but the bank or lender approves you for a 12% interest rate offer, or 
• The terms of your account are negatively affected. For example, your interest rate may be increased, your credit limit is reduced, or your current credit account is closed.
   

Under the FCRA, a creditor must also notify a consumer if their insurance application or policy, employment application, or any government license or benefit is adversely affected by credit report information. 

How Much Time Does a Creditor Have to Send an Adverse Notice? 

The creditor’s obligation to send you notification of adverse action is a legal requirement under federal law. It is not a choice. The ECOA requires a creditor to send adverse notices within 30 days after receiving your credit application, or 90 days after making a counteroffer that you did not accept. 

If a creditor does not send you the notice as required by the ECOA, you may have grounds to recover your actual and punitive damages, reasonable attorney’s fees, and costs. 

What Must an Adverse Action Notice Explain? 

Your notice must contain certain details about your application and the data used by a lending institution or other creditor as a basis for their decision. This information must include: 

• Which credit reporting agency supplied your credit report; 
• A statement that the credit reporting agency did not make the decision regarding your credit application; 
• A notice that you have 60 days to request a free copy of your credit report from the credit reporting agency that issued it; 
• An explanation of your right to file a dispute with the credit reporting agency to have any incomplete or inaccurate information in the report corrected; and 
• The credit details that were used as a basis for the adverse action taken against you. This includes your actual credit score and where it ranks nationally among other consumers’ credit scores. 
  

What to Do if You Receive an Adverse Decision Notice 

If you receive an adverse action notification from a lender, something in your credit report (or the aggregate of the information contained in the report) caused a problem. You are not obligated to respond to the notice. However, if you believe that information in your credit report is incorrect and you want to have it corrected, you have the right to do so. 

To correct an error in your credit report, you need to contact the credit reporting agency directly. In the United States, many reporting agencies collect credit histories and other information, but the three largest nationwide credit reporting agencies are: 

• Experian 
• Equifax 
• TransUnion
   

Before contacting the credit reporting agency, gather the following: 

• Your personal contact information; 
• Details to explain the mistake and why it is an error; 
• Any evidence you have that supports your dispute; and 
• Your report confirmation number, which is found in your credit report.

   

Although you can dispute your credit report over the phone or online, it is best to send a written dispute by certified mail with a return receipt requested. Be sure to provide copies of all supporting documents. Also, remember to save copies of all documents and communications related to your dispute. 

Once you have filed a dispute, the credit reporting agency has a legal duty to investigate the dispute, unless it is determined to be frivolous. Following its investigation, if the reporting agency is unable to verify the accuracy of the disputed information, it must be corrected or removed from your credit report. If these actions don’t occur, you may be entitled to bring legal action against the credit reporting agency to recover allowable damages, attorney fees, and costs. 

If You Received an Adverse Action Notice Based on Inaccurate Credit Report Information and the Credit Bureau Refuses to Help, Turn to Schlanger Law Group 

While receiving a notice of adverse action is unfortunate, you still have the right to protect your credit information, dispute reporting errors, and correct inaccuracies. The information contained in an adverse action notice can alert you to incomplete or inaccurate information in your credit report and help improve your credit in the future. 

If the information that led to the adverse decision is untrue, you should take action to have your credit report corrected. Unfortunately, you may face a credit reporting agency that won’t voluntarily correct or remove inaccurate information when you file a dispute. This is when you need to consult with a consumer protection lawyer who understands your rights and will fight to protect them. 

At Schlanger Law Group, we can explain the laws and resources available to help you dispute errors in your credit report and repair your credit history. For more information, call us at (212) 500-6114, or complete this simple form to schedule a free consultation with an experienced New York City attorney today.