|For our purposes, the term "Adverse Action" would
mean to deny credit to a business that is seeking credit
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.)
|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
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.
|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.
|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.