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What is Adverse Action?

The Equal Credit Opportunity Act (ECOA), requires a creditor who takes adverse action on a consumer’s credit application to provide a “statement of reasons” for the action.

Adverse action notice is required when:

  • Credit is denied or Credit is not even submitted for approval
  • Credit is not granted upon the terms requested;
  • or The decision is based entirely or in part on information contained in a consumer report.

According to the ECOA, any denial of credit, or a decision on behalf of the dealership not to even submit a credit.

 

What is the Law?

An adverse action notice must do the following:

  • Inform the consumer of the adverse action either with 2-4 reasons, or by notifying the consumer who to call at the dealership within 60 days to get the reasons.
  • Identify any consumer reporting agency that provided a credit report or credit score (Nowcom)
  • Provide the consumer’s credit score, information about the credit score, and up to four to five “key factors” that adversely affect the credit score (four key factors unless one is the number of recent credit inquiries).

 

What is Risk-Based Pricing Notice?

RBPN is intended to complement the adverse action notice requirement.

  1. Alerts consumers to the existence of negative information in credit reports so that may have an opportunity to correct errors.
  2. Required when “based on the consumer report, credit terms are being offered that are less favorable than to others.
  3. Dealers must provide the RBPN since they are original creditors by pulling credit reports which are used to determine the third –party financing source and at which “BUY RATE”.

 

How do I automate my Adverse Action compliance?

Once you've signed up for our Automated Adverse Action solution DealerCenter will do the following:

  • After you run a customer's credit, DealerCenter automatically mails a combined 2 page letter to customer’s address within 7 days. This includes the Adverse Action Notice and the is Risk-Based Pricing Notice
  • DealerCenter automatically updates the customer record with Print and Mail date in DealerCenter
  • Open Customer record, then select the Compliance tab and scroll down to review your Compliance Checklist:

Adverse_Action_Mailed_UI.png

For more information please contact your DealerCenter sales representative. 

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