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Adverse Action Notice Obligations Under ECOA and FCRA Adverse action means a refusal to grant credit or a refusal to grant credit in substantially the amount or on substantially the terms requested by the consumer, unless the consumer accepts a counteroffer of credit. Adverse action also means terminating an account or changing its terms in a manner unfavorable to the consumer, except for actions taken in connection with a default or delinquency on the account. An example is unwinding or re- contracting a “spot delivery” contract on less favorable terms. Auto dealers are identified as the creditor/seller on the retail installment sales contract (RISC), despite the fact they later sell the RISC to a finance source. ECOA mandates the following time frames • 30 days after receipt of a completed credit application concerning the approval of, counteroffer to, or adverse action on an application; • 30 days after taking adverse action on an incomplete application, unless notice is provided of an incomplete application as set for in Regulation B; • 30 days after taking adverse action on an existing account; or • 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered) for notifying the applicant of the credit decision, whether favorable or unfavorable, (e.g., offering credit, informing the consumer that additional information is necessary to make a credit decision, making a counteroffer, or sending an adverse action notice). An adverse action notice is not required if the dealer denies an application by providing a counteroffer which the consumer accepts. An ECOA adverse action notice must be in writing and, at a minimum, include either specific reasons why the credit application was denied or counter-offered, or tell the consumer how they may contact the dealership within 60 days to get the reasons along with the name, address and telephone number of the person who can provide the specific reason(s) for the adverse action. An ECOA adverse action notice must also include an anti-discrimination notice similar to the one in 12 C.F.R. 1002.9(b). There are additional state laws relating to adverse action as well. As creditors, dealers should give adverse action notices to consumers in at least three situations: • When a dealer takes a credit application but does not send it to any financing source, typically because the consumer is credit-challenged; • When a dealer unwinds or re-contracts a spot delivery deal; and • When the dealer is unable to get the customer financed on terms acceptable to the dealer. It is a common misunderstanding that a dealer can rely on a finance source’s adverse action notice. In fact, a finance source’s adverse action notice will not shield the dealer from liability in these instances as it does not contain the necessary disclosures that must be given by the dealer, including but not limited to naming the credit bureaus used and the federal agency that administers compliance for dealers (i.e., the FTC). Furthermore, most lenders advise dealers in their dealer agreement or their programmaterials that the lender’s issuance of any adverse action notice is only on such lender’s behalf.

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197 2020 MEMBERSHIP DIRECTORY & SERVICES GUIDE