NMP - February 2018 - 34

By Jonathan Foxx, Ph.D., MBA

Adverse Action Obligations
Question

FEBRUARY 2018 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

34

e were
cited for
not fulfilling
the
requirement
s for
adverse action. This came as a
real shock to us because we
relied on our LOS for the
information from the credit
bureau and our own
compliance attorney to provide
the procedures. This is really
unusual for us, as we are a
bank and have never previously
been cited for this infraction.
We conferenced about it and
decided to ask for your
guidance. We want to know
what are our obligations in
adverse action circumstances?

W

Answer
When a creditor takes any
adverse action with respect to
a consumer in connection with
a credit transaction that is
based, in whole or in part, on
any information contained in a
consumer report from a
consumer reporting agency, it
is incumbent on the creditor to
implement certain procedures.
Below, I set forth the three
primary obligations:
1. Provide the consumer oral,
written or electronic notice
of the adverse action;

2. Provide the consumer,
orally, in writing or
electronically, with:
a. The name, address and
telephone number of the
consumer reporting
agency that furnished
the report. If the agency
compiles and maintains
files on consumers on a
nationwide basis, a tollfree number established
by the agency must be
provided and
b. A statement that the
consumer reporting
agency did not make the
decision to take the
adverse action and is
unable to comment on
the specific reasons why
the creditor took the
adverse action; and
3. Provide the consumer,
orally, in writing, or
electronically, with a notice
of the consumer's right to:
a. Obtain a free copy of his
or her consumer report
from the consumer
reporting agency that
furnished the report, and
the notice must indicate
the 60-day period under
the Fair Credit Reporting
Act (FCRA) within which
the consumer may
obtain the free consumer
report as a result of the

adverse action; and
b. Dispute with the
consumer reporting
agency the accuracy or
completeness of any
information in a
consumer report
furnished by the agency.
[15 USC ยง 1681m(a)]
Please note that the
disclosure requirement
addressed in the response to
this question applies to an
adverse action taken, in whole

or in part, based on consumer
report information obtained from
a consumer reporting agency.
But there are many variations,
such as where there is a denial or
increase in the cost of credit that
is not based on a consumer
reporting agency, or where the
adverse action is based on an
affiliated party that is not a
consumer reporting agency.
Procedures for properly
implementing adverse action
should take into consideration
the full range of possibilities and
variations.

Jonathan Foxx, Ph.D., MBA, is the Managing Director of
Lenders Compliance Group, the first and only full-service,
mortgage risk management firm in the United States,
specializing exclusively in outsourced mortgage compliance
and offering a suite of services in residential mortgage
banking for banks and non-banks. Information contained in
this article is not intended to be and is not a source of legal
advice. If you would like to contribute a question, please
submit it to Compliance@LendersComplianceGroup.com.



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