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Adverse Action Notices
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), effective July 21, 2011, there was a critical change to dealer’s adverse action notice compliance requirements. These changes amended the adverse action notice requirements under Regulation B of the Equal Credit Opportunity Act (ECOA) to incorporate the Fair Credit Reporting Act (FCRA) requirement for credit score disclosures in risk-based pricing.
Generally, dealers are considered a creditor for ECOA and FCRA purposes and are subject to their adverse action notice requirements. Dealers are required to send adverse action notices to their customer within 30 days of receiving a consumer credit application in the following three scenarios:
  • Upon receipt of a consumer credit application but the application is not sent to a finance source for review
  • When a deal is unwound or a spot delivery deal is re-contracted
  • When the dealer cannot get the customer financed because they did not receive an acceptable credit offer from a lender or the customer rejects the dealer’s final offer of credit terms
The Dodd-Frank Act imposes the same requirements on all credit adverse actions that previously were applicable only to real estate transactions. In addition to the consumer’s credit score, the adverse action notice will also need to disclose the top four factors that adversely affect the credit score, plus inquiries if those affected the score but weren’t one of the top four factors. Also, the adverse action notice needs to contain additional information about the consumer’s credit score if the score was used in the dealer’s credit decision. Among other information, the new adverse action notice must disclose to the consumer:
  • The numerical credit score used in making the decision
  • The range of possible credit scores under the model used
  • All of the key factors that adversely affected the consumer’s credit score in the model used, the total number of which shall not exceed four, except that if a key factor that adversely affects the credit score is the number of inquiries, that factor shall be included as well (the 5th factor)
  • The date on which the credit score was created
  • The name of the person or entity that provided the credit score
Penalties for failing to issue an adverse action notice under the ECOA may include liability for actual and punitive damages of up to the lesser of $500,000 or 1% of the dealer’s net worth. Additionally, under the FCRA, the FTC can bring a civil action of up to $3,500 per violation occurrence.
CBC provides adverse action notices that meet these FTC requirements as well as the ability to generate these new adverse action notices directly from the credit report.
Adverse Action Notice Fulfillment Service
Let CBC take the time, hassle, and worry out of your adverse action notice compliance requirement for your business. CBC will send adverse action letters to the appropriate customers, on your dealership's behalf, to satisfy your compliance requirements.
Features and benefits of CBC providing your adverse action notice fulfillment:
  • eliminates the need of sorting through deal jackets and dead deal files to determine who requires a letter
  • eliminates additional labor costs
  • eliminates the probability of human error
  • allows you to select the criteria by either deal status or credit score
  • letters sent out twice monthly to meet the compliance timeframe requirements
  • supplies a monthly summary report of all letters generated and sent
  • automatically stores an electronic copy of the adverse action letter in the eVault
  • providing a permanent audit trail
  • provides a cost savings
  • requires no long term contract and no set up fees
Contact CBC for more information.
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