![]() ![]() This article presumes the reader is familiar with our prior article, which defined adverse action and reviewed the general AAN requirements. Finally, we discuss the emerging issue of the AAN considerations when a credit decision is based on innovative credit practices, such as credit models using alternative data sets, artificial intelligence (AI), or machine learning (ML). In addition, we review the AAN requirements when multiple creditors are involved in a credit transaction. We also review the differences among an inquiry, prequalification, and preapproval as well as the notice requirements for each. In this follow-up article, we discuss advanced AAN requirements, including counteroffers, incomplete applications, and withdrawn applications. 2 Outlook published an article in 2013 on these requirements titled “Adverse Action Notice Requirements Under the ECOA and the FCRA ,” which is our most viewed article. Unlike the ECOA, however, the FCRA applies only to consumers and more broadly applies to adverse action on certain noncredit transactions such as employment or insurance applications. The Fair Credit Reporting Act (FCRA) also imposes AAN requirements in certain circumstances. As the legislative history of the ECOA quoted at the beginning of this article indicates, these notices provide transparency to the credit underwriting process and help protect applicants against potential credit discrimination by requiring creditors to specify the reasons for taking adverse action. If adverse action is taken, as defined in the ECOA and Regulation B, the creditor must provide an adverse action notice (AAN) disclosing the reasons for taking adverse action, and, if a credit score was used, the key factors adversely affecting the score. The Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, requires creditors to notify businesses and consumers applying for credit about the action taken on their applications within specified time periods. ― Legislative history of Equal Credit Opportunity Act Amendments of 1976 1 Instead of being told only that they do not meet a particular creditor’s standards, consumers particularly should benefit from knowing, for example, that the reason for the denial is their short residence in the area, or their recent change of employment, or their already over-extended financial situation. ejected credit applicants will now be able to learn where and how their credit status is deficient and this information should have a pervasive and valuable educational benefit. a strong and necessary adjunct to the antidiscrimination purpose of the legislation, for only if creditors know they must explain their decisions will they effectively be discouraged from discriminatory practices. The requirement that creditors give reasons for adverse action is …. Consumer Compliance Outlook: Fourth Issue 2021 Advanced Topics in Adverse Action Notices Under the Equal Credit Opportunity Actīy Dolores Collazo, Senior Examiner, Federal Reserve Bank of Atlanta
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