Study Up on Adverse Action

The purpose of articles like this is to help dealers improve their operations, avoid pitfalls, and correct practices that could ruin their dealership reputation, revenue or both. This advice is about the adverse action notice.

As a reminder, an adverse action notice is required when a credit decision is based entirely or in part on information in a consumer report, and:

  • Credit is denied
  • Credit is not even submitted for approval based upon an application
  • Credit is not granted upon the terms requested and no counter-offer accepted
  • The deal is later unwound, due to lack of a funding source

The Fair Credit Reporting Act (FCRA) governs the requirement. Many dealers are under the misconception that the regulation is for the finance source—and do not comply. In this day of scrutiny, especially under aggressive consumer watchdog groups and attorneys, dealers not routinely issuing adverse action notices when called for, ask for trouble.

As the FTC moves to keep up with the Consumer Financial Protection Bureau (CFPB) in pursuing enforcement headlines against auto lenders and auto dealers, it is vital that dealership management review how F&I handles and complies with the FCRA and Equal Credit Opportunity Act for Adverse Action notices.

Some advice:

Protect your business: Define how the dealership will use this notice in your F&I process manual and train your employees.

Know the process: Despite an exemption under the FCRA for private lawsuits, a dealer can be sued privately, and often is, for failing to provide an adverse action notice under ECOA. It also requires a creditor who takes adverse action on a consumer’s credit application to provide an adverse action notice and “statement of reasons” for the action. Therefore, according to the ECOA, any denial of credit, or a decision on behalf of the dealership not to even submit a credit application, will require an adverse action notice be forwarded to the consumer.

Recognize the risk: A consumer may bring a civil action against any dealer who fails to comply with any requirement imposed under the ECOA, including failure to provide an adverse action notice. A claim against a creditor for failing to provide an adverse action notice may be brought even if the consumer alleges no discrimination. The adverse action notice required under the ECOA is required in every credit transaction covered by the ECOA and is not contingent upon any claim of actual discrimination.

Adverse action compliance is serious. For more information on this subject, contact the author or visit

David R. Missimer, is General Counsel for Automotive Compliance Consultants Inc. He spent 28 years in private practice as a seasoned litigator and trial lawyer representing lenders, auto dealers and numerous other entities and individuals. He has worked with dealership compliance issues since 2003. He joined Automotive Compliance Consultants in 2003. He is a member of American Financial Services Association and National Automotive Finance Association as General Counsel of Automotive Compliance Consultants Inc.

David R. Missimer

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