The NAFCU Journal: Adverse Action Notices - What To Do When You Deny a Credit Application

By David Park, NCCO, Regulatory Compliance Counsel, NAFCU

On its list of supervisory priorities for 2019, the National Credit Union Administration (NCUA) has included compliance with the adverse action notice requirements found in Regulation B and the Fair Credit Reporting Act (FCRA). Both Regulation B and the FCRA have distinct adverse action notice requirements, but a credit union may be obligated to send notices under one and not the other. Even though 2019 is past its midpoint, NCUA’s focus on adverse action notices continues. But what is an adverse action, and what is a credit union’s obligation when adverse action is taken?

What Is Adverse Action

Both Regulation B and the FCRA include requirements to notify consumers if an adverse action is taken, but the two regulatory schemes define adverse action in slightly different terms.

Regulation B

For Regulation B, reductions in credit limits for existing accounts, denials of credit applications and making counteroffers that are not accepted all fall within the definition of adverse action. On the other hand, closing credit card accounts because of inactivity or because a member is delinquent when the account is closed is not adverse action under Regulation B. The same is true when a credit union exercises its contractual right to accelerate the maturity of a mortgage loan if a member sells a mortgaged property without the credit union’s consent.

The scope of Regulation B, which applies to credit applications without distinguishing between consumer and business credit, means that Regulation B’s adverse action requirements can apply to both types of credit. [12 CFR § 1002.2(e)]


What constitutes adverse action is broader under the FCRA than under Regulation B. The FCRA defines adverse action as including Regulation B adverse actions, as well as an action adverse to a consumer’s interests on an application initiated by a consumer or in connection with an account review. [15 USC § 1681a(k)(1)(A) & (B) (iv)] Unlike those of Regulation B, the FCRA’s adverse action notice requirements apply only to individual consumers. [15 USC §§ 1681a(c) & 1681m(a) & 1681m(b)(1) & (2)]

But the FCRA adverse action notice requirements may be implicated if a credit union obtains a consumer report in connection with an application for business credit. A credit union also may decide, after reviewing a consumer’s report, that it will not solicit that individual for credit. This decision is not an adverse action, as no application was initiated by the consumer and no existing account was acted upon based on review.

When Is Notice Required?

Once a credit union has established it has taken adverse action, the credit union then needs to determine whether an adverse action notice is required under Regulation B or the FCRA and when the notice is due.

The trigger for whether Regulation B requires an adverse action notice is the act of taking adverse action. The timing requirements for Regulation B adverse action notices depend on what the credit union received or what the credit union did. If the credit union received a completed credit application, then it has 30 days to determine whether to approve the application, deny it or make a counteroffer, and the credit union needs to notify the member within that 30-day window. [12 CFR § 1002.9(a)(1)(i)] Upon receipt of a completed application, an adverse action notice would be required under Regulation B if the credit union denied the completed application for credit.

If the credit union receives an incomplete application, it has two options for how to proceed:

  1. It can deny an incomplete application and notify the member within 30 days of receiving the incomplete application. [12 CFR § 1002.9(a)(1)(ii)]
  2. It can elect to send a notice of incompleteness within 30 days. [1002.9(c)(2)]

With respect to adverse action on an existing account — such as reducing a credit limit for a reason other than inactivity, default or delinquency — a credit union must notify the member within 30 days of taking adverse action. [12 CFR § 1002.9(a)(1)(iii)]

This article was published in the July-August 2019 edition of The NAFCU Journal magazine. 
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