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Compliance Simplified: Understanding Adverse Action Notices

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  1. What is Adverse Action?
  2. When is an Adverse Action Notice Required?
  3. Legal Requirements for Adverse Action Notices
  4. Understanding Risk-Based Pricing Notices
  5. How to Print an Adverse Action Notice
  6. Automating Adverse Action Compliance

What is Adverse Action?

Adverse action is a term used in the lending industry, defined by the Equal Credit Opportunity Act (ECOA) as any action by a creditor that negatively impacts a consumer's credit application. When such action is taken, the creditor must provide a statement of reasons for the decision.

When is an Adverse Action Notice Required?

An adverse action notice must be given if credit is denied or not submitted for approval, if credit terms offered are not what was requested, or if a decision is made based on information in a consumer credit report.

Legal Requirements for Adverse Action Notices

Under the ECOA, an adverse action notice should inform the consumer of the decision, provide contact information for the dealership, identify any reporting agencies that provided credit information, and disclose the consumer's credit score along with key factors affecting it.

Understanding Risk-Based Pricing Notices

Risk-Based Pricing Notices (RBPN) inform consumers about less favorable credit terms offered based on their credit report. It allows them to check and correct any inaccuracies. Dealerships, as original creditors, are required to provide this notice when applicable.

How to Print an Adverse Action Notice

Printing an Adverse Action Notice is straightforward in DealerCenter:

  1. Select the 'Compliance' tab on the Customer record.
  2. Click 'Print' next to 'Adverse Action Letter' in the Compliance Checklist.
  3. Choose the reasons for adverse action from the provided list.
  4. Print out the letter to send to the customer.

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Automating Adverse Action Compliance

DealerCenter's Automated Adverse Action solution takes care of the process for you. After a credit report is run, a combined letter including the Adverse Action and RBPN is automatically mailed to the customer. The system also updates the customer record with the print and mail date, keeping your compliance checklist up to date.