Adverse Action Letters: Basic Terms and Requirements
No one likes delivering bad news. But sometimes there’s no way around it.
Over the last month, there have been tens of millions of unemployment claims. As a result, major banks like JP Morgan, Citi, and Bank of America have increased their bad-debt reserves. Couple that with FICO’s new lending thresholds…a surge in bad news is on the horizon. It’s time to talk capacity and redundancy for your adverse action or debt recovery letter programs.
What Are Adverse Action Notices?
Adverse action notices are communications from businesses to applicants refusing to grant credit, extend coverage, offer employment, or open accounts. In essence, they are formal bad news documents.
Why Might You Need to Send Adverse Action Notices?
These notices are required under the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). The ECOA (mandated through Regulation B) focuses on protecting consumers against credit discrimination, requiring creditors to explain adverse actions.
The FCRA takes a broader perspective when it comes to consumer transactions, including:
Denials or other decisions that adversely impact current or prospective employees
Adverse actions related to a consumer’s application or transaction
Denials, cancellations, or unfavorable changes in coverage terms of any insurance
Denials, cancellations, or unfavorable changes in terms of any government license or benefit
Whereas the ECOA applies to credit underwriting and account termination, the FCRA covers a wider range of consumer-related transactions such as employment, insurance coverage, rental applications, etc.
Timing Requirements
While Regulation B provides specific timing requirements for adverse action notices, the FCRA does not. Creditors are required to notify applicants with an adverse action notice within:
30 days after taking adverse action on an incomplete credit application
30 days after receiving a complete credit application
30 days after taking adverse action on an existing credit account
90 days after counter offering a credit application if the applicant doesn’t accept the counter
The ECOA and FCRA have different content and formatting requirements. Regulation B requires creditors to include the following:
Name and address of the creditor
Name and address of the creditor’s primary regulator
A statement that specifically indicates the principle reasons for the adverse action
An ECOA antidiscrimination notice
FCRA Content Requirements
The FCRA requires notices to include the following:
Name, address, and number of the consumer reporting agency that performed the report
State that adverse action was taken based on information provided by a consumer reporting agency
Inform the consumer of their right to (a) obtain a free copy of their consumer report if requested within 60 days, and (b) dispute the accuracy of the consumer report
State that the consumer reporting agency was not responsible for the adverse action and is unable to provide the reasons behind the adverse action
The consumer’s credit score if it was a factor in the adverse action
For more detailed information around these requirements, visit here for Regulation B and here for the FCRA.
Using direct mail automation to simplify your adverse action notices
To alleviate the burden of sending massive amounts of adverse action notices, consider automating your direct mail process. Direct mail automation simplifies data and reduces human error by using one centralized system. Combined with variable data printing (VDP), direct mail automation can process high volumes of personalized notices.
Sepire’s CompliChain technology enables users from wherever they are to continue to seamlessly see their direct mail workflow and adjust as needed. Plus, it provides real-time visibility into analytics and reporting.
We make direct mail automation easy. To learn more, or get ahead of this surge, let’s talk.