For our purposes, the term "Adverse Action" would mean to deny credit to a business that is seeking credit your business. The business creditor may provide a statement of the action taken either orally or in writing, when adverse action is taken. In addition, the creditor is required to disclose that the applicant has a right to a statement of reasons pertaining to the credit decision. However, this disclosure may be given at the time of the application, instead of when adverse action is taken, provided the disclosure contains the information required by Regulation B. (This includes the disclosure of the name and contact information of the individual from which the statement of reasons can be obtained and the fact that the applicant can have the statement of reasons provided in writing within 30 days of a written request from the applicant. Additional information required includes the general ECOA prohibitions against discriminatory credit granting practices and the identification of the Federal agency that administers the compliance review of this activity.) |
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In it's simplest form, this is what a creditor should do when denying credit to an applicant: 1) Notify the applicant in writing within 30 days of a decision not to extend credit. 2) Keep records of the notification to the applicant for 6 months. 3) An applicant then has 60 days from the receipt of the notification to contact the creditor and ask for an explanation of why they were denied credit. 4) If the applicant asks for additional information on why they are not being granted credit, it is best to again reply in writing, stating your reasons within 30 days. At this point, all records must be retained for 12 months. |
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It would appear that the best way to handle an adverse action (denying credit) would be to always do so in writing and state the specific reasons in your first letter to the credit applicant. Maintain a copy of your letter to the applicant for 12 months thereafter, and you should be in full compliance with the law. |
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Subscribers to our service may download ready to use forms with sample language on them that are in full compliance with the provisions of the ECOA. |
Adverse Action |
Record Keeping |
Summary |