Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video discusses the Notice of Reverse Action / Notice of Action Guidelines under the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA). For course credit for renewing your NMLS license, visit firsttuesday.us.
On Refusal: Adverse Action Notice
If the loan is refused, then instead of being approved, the Foreign Direct Investment Law requires the originator of the loan to disclose the reverse action.
Differentiating an ECOA Notice of Action Taken
The FCRA requires any loan originator to take adverse action against a consumer based on any information on a consumer report to provide the consumer with information Reverse action notice. Remember from the last module that ECOA also requires a Notice of Adverse Action (called Notice of action taken). Disclosure requirements are based both on a passive procedure, but on required disclosures They are not the same!
ECOA requires notice of adverse action At what time Credit is refused, terminated or changed in a manner unfavorable to the consumer. Notification of action taken under the Environmental Protection Act requires disclosure of specific reasons for credit refusal. for ECOA Notice of action taken, along with demographic information required to be collected under the Anti-Corruption Act, is used to determine if there is a pattern of unlawful discrimination.
In contrast, the FCRA’s Notice of Reverse Action is based on a denial, termination, or unfavorable change of extended credit in connection with the use of consumer credit information. in FCRA Reverse action notice It does not require specific reasons for denying credit, but it does require disclosure of factors that negatively affect the credit score used in a credit decision. The purpose of the FCRA’s disclosures is to make consumers aware of the credit information used, so that they can object to any inaccurate information.
The disclosure requirements for each are independent of one another, although most loan originators and lenders provide disclosures in the same form and/or at the same time. Annex B of the ECOA even provides a form that satisfies the disclosure requirements of both laws. For residential mortgage loans, both disclosures will apply.
Malicious action led to disclosure
The definition of reverse action under the FCRA is the same as the definition of reverse action under the Terrorism and Crime Act:
For purposes of creating a mortgage, a negative action Any refusal or cancellation of a credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit substantially in the amount or on the basis of conditions substantially sought. [15 USC §1681a(k)(1)(A); 15 USC §1691(d)(6)]
that negative action Does not include:
- refusal to grant additional credit under an existing credit arrangement where the applicant is in delinquent or in default; or
- Refusal to grant additional credit that exceeds a pre-set credit limit. [15 USC §1691(d)(6)]
timing to notice
The FCRA does not specify a timeline for providing a notice of consumer adverse action. However, ECOA requires that you provide a notice of action taken within 30 days of receiving your completed loan application. Because FCRA and ECOA Adverse Action Notice disclosures are typically sent in the same document, a 30-day schedule is a good rule of thumb.
FCRA Disclosures Required
An individual who takes adverse action against a consumer based on information on a consumer credit report provided by a consumer reporting agency must provide:
- credit score, or credit scores on which the opposite action is based;
- The range of possible credit scores under the model used;
- credit score creation history;
- The name of the person or entity who provided the credit score; And
- up to four main factors that negatively affected the credit score (five, if one of the main factors is the number of inquiries);
- The name, address and telephone number of the consumer reporting agency that submitted the report to the individual who took the reverse action;
- A statement that the consumer reporting agency has not made a decision to take the opposite action and is unable to provide the consumer with specific reasons for taking the opposite action;
- Disclose the consumer’s right to a free copy of the consumer report on which the reverse action is based within 60 days of receiving the notice; And
- Disclosure of a consumer’s right to object to the accuracy or completeness of information in a consumer credit report. [15 USC §1681m(a); 15 USC §1681g(f)(1)]
When an adverse action is taken based on information from an external source other than a consumer reporting agency, the creditor must file a Section 615(b) disclosure. This rule also applies when a creditor obtains information from an Affiliate other than a consumer report or information about the Affiliate’s transactions or experiences with a consumer. [12 CFR § 1002.9]