Credit Scores on Adverse Actions

An adverse action is defined as an action where a consumer, or in some cases a business, is denied employment, insurance or some other type of benefit due to their credit. 

The Fair Credit Regulations Act (FCRA) and the Equal Credit Opportunity Act (ECOA) Regulation B, requires credit unions to send out letters to notify people of any sort of adverse actions taken on their account. If the adverse action was due to credit, the credit score should be included in this notification. However, there may be some confusion when determining situations in which a credit score is required.

This article will take a look at credit scores on adverse actions and when they are required to be included. 

General Rules of Credit Scores on Adverse Actions

According to Regulation B, if a person is denied an extension of credit, the principal reason for the denial must be included on the notification. If the denial is due to bad credit, the credit score must be included. 

The FCRA also requires that a credit score is included on denials for extension of credit if the credit score contributed to the unfavorable decision in any way. In addition, the organization requires that the notice includes four factors that adversely effected the person’s credit. 

Section 615(a)(2) of the FCRA states that, if adverse action is due to credit, a notification must be sent containing a numerical credit score and certain information listed in 609(f)(1). It must also include the contact information of the credit reporting agency that provided the report and a notification that the consumer may contact this agency for a free copy of the report. 

What if the Credit Score Was Not Used to Make the Decision?

Adverse action is not always due to a low credit score. It could also be due to other factors like a person having large amounts of debt. This begs the question, if the adverse decision was not due to the credit score, does the credit score still need to be provided in the notification? 

Unfortunately, the FCRA’s Regulation V does not provide a clear answer to this question. However, you may find some answers in reviewing the Federal Trade Commission’s ’40 Years of Experience with the FCRA’. In the book you will find the wording, “the party taking the adverse action must also disclose a numerical credit score that contributed to the adverse action, along with certain related information”. 

This wording suggests that a credit score is only necessary if it was the cause of adverse action. However, this wording is not binding and credit unions may want to take a conservative approach to stay on the safe side.

What if a Consumer Has No Credit Score?

If a credit agency finds that a consumer does not have enough credit history to generate a credit score, the credit score does not have to be addressed on any notifications. However, if the lack of a credit score led to any adverse actions that were taken, consumers must be notified that this was the reason for the denial of credit. 

What is a Consumer Has Multiple Credit Scores?

In some cases, credit unions may obtain multiple credit scores on a consumer. In these cases, they are permitted to use one or more of these scores to take adverse action. When notifying the consumer of the adverse action, they are required to include the score or scores they based their decision on in the notification. 

Appendix C of the EOCA’s regulation B contains language that states that the consumer may contact the entity or entities that provided the credit score if they have any questions. The contact information for any credit reporting agencies that provided the report must be included in any notifications of adverse actions.

Getting Legal Help for Your Credit Matters

The world of credit can get confusing. If you feel that you have been unfairly denied credit or if you feel a credit agency has not provided you adequate information on why credit was denied, you may want to consult an attorney to find out more about your rights. 

If you are looking for an attorney in the state of Louisiana, Samuel Ford of Alexander Shunnarah Personal Injury Attorneys are highly recommended.

SVHC have years of experience in the field of consumer protection. Their will use their knowhow to provide you with the information they need. They will see to it that justice is served.

Credit matters can get confusing. Don’t try to go it alone. Call the SVHC team today. 

Samuel Ford of SVHC offers free consultations and, if you have a claim, you may be able to recover all associated costs and attorney’s fees, meaning SVHC may be able to represent you at no cost to you! Contact Samuel Ford today!

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