If you've received one of these notices in the mail, you might be wondering what does adverse action mean?
When someone takes out a loan, they need to fill out a loan application. Lenders then overview the application and make a decision about approval or denial based on information from the application. Lenders let borrowers know if their application was denied by sending what’s called an adverse action letter or notice.
An adverse action letter is a notice that lets someone know their application was denied. You could receive this notice in the form of a letter or an email.
When you apply for credit, a job, an installment loan, or insurance coverage and those applications are denied, the person or business that received your application might send you a formal notice or letter to let you know your application was denied.
The content of your letter includes information about why your application was not approved. Companies might not list every reason you were denied, but they will list a few of the main reasons you were denied.
Here are some examples of reasons your application might not get approved:
The notice will have some other basic information on it as well:
With this information, you can now better understand where your credit score stands and how you might be able to improve your credit. You can also contact a consumer reporting agency if you find inaccurate information on a copy of your credit report.
These reporting errors could be part of why your application was denied, and fixing inaccurate information with a consumer reporting agency can help you get approved next time.
An adverse action notification can apply to many instances of denial or termination. You could receive one if you were denied a job, if your loan application was not approved, if you filed for extensions of credit and got denied, or if you are being dropped from any other kind of contract or benefit.
The person or business that sends the letter will often have their own requirements that applicants must meet to be approved. The notice will usually outline which requirements you lacked or any other reasons why you weren't approved for the job, raise, promotion, loan, or credit.
You can receive a notice like this from many places and for many reasons. Here are a few examples:
The notice will also look different based on who is sending it.
If it's from your landlord, then the notice will have the name of the property, the landlord, the landlord's signature, and bulleted lists outlining why your rental application was denied.
If it's from a financial institution, it will look similar, but the bulleted items will be financial requirements that applicants must meet, and not rental requirements that tenants must meet.
A pre-adverse action is a notice that comes before the official decision has been made. They are used most often during the hiring process to let an applicant know that something failed in their background check.
A pre-adverse action is not an official denial though. It simply informs the applicant that the company is considering denying or withdrawing their job offer and why that is the case.
Just like an official notice, a pre-adverse action notice contains the following information:
The reason some employers will send a pre-adverse action is to give the applicant time to dispute the application denial before the denial is official. This is especially helpful in the case of a failed background check.
The Fair Credit Reporting Act (FCRA) is an act that helps protect consumers and regulates credit, loans, and credit reporting. One of the things they help regulate are adverse action notice requirements, how they should be sent, what should be on them, and when they need to be sent.
For example, according to the FCRA an adverse action letter should be given orally, in writing, or electronically. The letter must then include the following requirements found on FTC.gov.
To read more about the Fair Credit Reporting Act and adverse action requirements, read the act at Fair Credit Reporting Act.
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