As part of the Federal Reserve Board's Outlook Live Webinar series, on July 17, 2025, examiners from the Minneapolis and Chicago Federal Reserve Banks hosted a webinar to discuss the regulatory requirements related to adverse action notifications under the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, and the Fair Credit Reporting Act (FCRA). We thought the information that was presented would be helpful to our clients and friends who are just getting acquainted with these issues and would be a good refresher for our clients and friends who are longtime practitioners in consumer financial services law.
An overview of the triggers and substance of these adverse action notices can be found here.
In their presentation, the examiners offered insight into the most common notice violations. For Regulation B notices, they noted that creditors frequently fail to either provide accurate, or sufficiently specific, reasons for the action taken. They advised that general explanations such as, "credit score below bank policy," or "outside of risk tolerance" are not specific enough. As a general point of reference, they recommended reviewing Sample Form C-1 in Regulation B that contains a non-exhaustive list of 23 reasons for adverse credit actions.
The examiners did recommend providing up to four reasons for any adverse action. (The Commentary to Regulation B states that disclosure of more than four reasons is not likely to be helpful to the applicant.)
Additionally, they noted that another common violation of Regulation B is that creditors frequently fail to provide timely notice for incomplete applications. This is largely due to applications not being identified as incomplete or failing to provide either a standard adverse action notice or notice of incompleteness.
With regard to the FCRA, they pointed out that creditors most commonly fail to disclose credit score information. The examiners reported that this often happens because creditors either (a) incorrectly assume that credit score information must only be disclosed if a credit score is the sole, or primary basis for an adverse action; or (b) only make credit score disclosures where a minimum credit score is established. Credit score disclosures must be made if the score is a factor in the adverse decision, regardless of the weight of influence.
To remediate these issues, the examiners suggested:
- implementing policies and procedures with sufficient detail to ensure adequate documentation of reasons for denial in making credit decisions;
- ensuring that updates for automated disclosure systems are received, tested, and correctly implemented;
- maintaining a strong training program, for both current regulations and any recent changes, including training for underwriters to document reasons for denial and loan staff on how and when to generate adverse action notices; and
- implementing internal controls such as secondary review of all adverse action notices, a consistent process for delivering a combined adverse action notice to all consumer applicants, and regular and ongoing tracking of application status.
Although the examiners did not focus on this, we note that there are additional credit score disclosure requirements that apply to any person who makes or arranges loans and who uses a consumer credit score in connection with an application initiated or sought by a consumer for a closed-end loan or the establishment of an open-end loan for a consumer purpose that is secured by one-to-four units of residential real property. Creditors and compliance personnel sometimes overlook these disclosure requirements because they appear in Section 609(g) of the FCRA, rather than in Section 615 of the FCRA.
The webinar provided a number of useful hypothetical scenarios to test one's understanding of regulatory requirements under the ECOA. We think the following scenarios were particularly instructive. (We have made some minor editorial changes and added commentary to some of these scenarios).
Scenario #1
A customer asks a lender for car loan rates. The loan officer asks the customer for the make, model, and year of the vehicle and provides the customer with rates. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: C. Inquiry. Regulation B (comment 2(f)-4) provides examples of inquiries that are not applications, including a situation where a consumer calls to ask about loan terms and an employee explains the creditor's basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.
Scenario #2
A bank reduces a customer's credit limit on their line of credit due to the customer being delinquent on the credit account. Must the bank send an adverse action notice to the customer?
Answer: No. Regulation B (1002.2(c)(2)(ii)) states that the term "adverse action" does not include "any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account." If the bank reduced the customer's credit limit because the customer moved out of the bank's service area, for example, an adverse action notice would be required. Regulation B (1002.2(c)(1)(ii)) defines an "adverse action" to include "a termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts".
Scenario #3
An applicant inquires with a bank about a home loan, including how much she may qualify for and loan program options. As a part of the inquiry, the applicant's credit is pulled. The bank sees a recent bankruptcy on her credit report and tells the applicant that it will not be able to approve a home loan because of the bankruptcy. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: D. Application. Regulation B (comment 9-5) states that if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline a request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application. We note that in this situation the creditor would need to provide an adverse action notice under both the ECOA and FCRA.
Scenario #4
A bank denies a line of credit application because the customer's debt-to-income ratio exceeds the bank's established limit. Which of the following denial reasons is sufficiently specific?
- Income insufficient for amount of credit requested
- Excessive obligations in relation to income
- Poor credit performance with us
- Value or type of collateral not sufficient
- Income insufficient for creditor's internal standards or policies
Answer: B. Excessive obligations in relation to income. Answers A, C, and D do not accurately indicate the principal reason for the adverse action. Answer E is insufficient. Regulation B (1002.9(b)(2)) specifies that "statements that the adverse action was based on the creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient".
Scenario #5
The bank denies a loan application because a customer had a charged-off credit card from another institution (caused by nonpayment). How can the bank meet the regulatory requirement that the statement of action taken be specific and indicate the principal reasons for the adverse action?
- The bank can select the "foreclosure or repossession" reason listed on the model form.
- The bank can select the "poor credit performance with us" reason listed on the model form.
- The bank can select the "collection action or judgment" reason listed on the model form.
- The bank can manually add a "charge-off" reason and use it when applicable.
Answer: D. The bank can manually add a "charge-off" reason and use it when applicable. Institutions would utilize the "other, specify" reason on the model form when the other listed reasons do not accurately describe the reason for adverse action. Regulation B (Appendix C-4) states that "if the reasons listed on the forms are not the factors actually used, a creditor will not satisfy the notice requirements by simply checking the closest identifiable factor listed." Bank management should train its staff on which reasons to use and when. Bank management should also implement reviews of adverse action notices that include an assessment of whether the bank accurately disclosed the reason(s) for adverse action.
Scenario #6
An applicant inquires with a bank about a car loan, including how much she may qualify for. The lender tells the applicant the loan amount and rate for loan products the bank offers and explains the process of applying, including the information needed to make a credit decision. Which of the below accurately describes this customer's interaction with the creditor?
- Preapproval
- Prequalification
- Inquiry
- Application
Answer: B. Prequalification (really a prequalification request) or C. Inquiry. As explained in Regulation B (comments 2(f)-3 and 9-5), an inquiry or prequalification request becomes an application if the creditor evaluates information about the consumer and decides to decline the request. In this scenario, the creditor has not evaluated any information or advised the consumer of a credit decision.
Additional resources on the FCRA and ECOA adverse action notices can be found linked in the presentation materials available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
