Your Rights to Notice Regarding Credit Decisions
The ECOA and FCRA require creditors to provide certain notices when granting, denying, or changing credit.
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Unlawful discrimination may occur in connection with credit you already have or new or additional credit you request. The Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA) each require certain notices in connection with a creditor’s decision to change, grant, or deny credit. The required notices are intended to expose and prevent discrimination and to provide you with more information so you can determine why a particular decision was made, whether it was a legitimate decision, and check the accuracy of any credit report or other information that the creditor used in making the credit decision.
(To learn more about what types of credit discrimination are not allowed, see Laws That Prohibit Credit Discrimination.)
ECOA Required Credit Notices
The ECOA requires that most creditors give notice of credit decisions as follows.
Appraisals. If you apply for credit on a residence, and the creditor does not give you a copy of any appraisal done, you can get a copy of the appraisal by sending a written request to the creditor.
Other credit decisions. The ECOA requires a creditor to tell you its decision within 30 days of receiving your credit application or taking an “adverse action” on your existing credit account. An adverse action is when a creditor:
- denies your credit request
- offers a substantially different amount or terms from those you requested
- revokes your existing credit or changes the terms of your existing credit (but not those of most others in the same class of the creditor’s accounts), or
- refuses your request to raise your credit limit.
If the creditor takes an adverse action, it must give you a written notice that tells you
- what adverse credit decision it made, and
- include a statement of the specific, principal reasons for the credit decision or your right to make a written request for a statement of the reasons within 60 days and to receive it within 30 days from your request.
You are not entitled to this notice if you are denied additional credit under an existing credit agreement when you are already delinquent or otherwise in default, or if the additional credit requested would put you above your credit limit. But it doesn’t hurt to ask for the information anyway.
FCRA Required Notices
The FCRA requires that creditors give notice of credit decisions as follows.
“Adverse Action” Notice
The FCRA requires creditors taking adverse action (see above for the definition) to give you a notice with this information:
- the nature of its credit decision
- the identity of the consumer reporting agency providing the information upon which it relied in making its decision
- that you can get a free credit report from that consumer reporting agency if you ask for it within 60 days, and
- that you can dispute incorrect or incomplete information in the report.
If the creditor also used a credit score in making its decision, it must tell you
- your credit score
- the creditor must also tell you the range of possible credit scores
- the key factors that adversely affected your credit score
- the date the score was created, and
- the name of the entity that provided the score or credit file on which the score was based.
If the creditor relied on information from some other source when making its decision, it must tell you that you have the right to request, within 60 days, the reasons for the adverse action. If you do make such a request, it must tell you upon what information it relied.
Generally, a creditor will combine the ECOA and the FCRA notices into one.
Risk-Based Pricing Notice
As of August 15, 2011, if a creditor charges you a higher annual percentage rate (APR) than it charges others, it has to comply with certain notice obligations. These FCRA notice requirements kick in if a creditor uses a consumer report in connection with deciding what regular APR to charge for new or existing credit, and offers you a rate less favorable than the rate it offers approximately 40% of other consumers to whom it offered a similar type of credit. The rule doesn’t require lenders to tell you that it offered a different type of loan to people with better credit. For example, if the creditor offers you a variable rate home loan, but offers fixed-rate home loans to a substantial number of its customers with better credit histories, it does not have to give you a notice telling you that. It only has to notify you if it offers a substantial number of customers a better rate on a variable rate loan.
The notice requirement has many other exceptions and limitations.
- The creditor does not have to comply with the new notice rules if it gave you credit on the terms you requested.
- If the creditor gives you an “adverse action” notice, it does not have to comply.
- The creditor only has to compare APR rates within a specific type of credit (such as student loans, new car loans, or variable rate home loans).
- If the creditor sends a particular credit card offer only to customers with low credit scores, for example, it does not have to tell you what credit card offers it makes to other groups of consumers.
- It only has to compare the regular APRs, not other rates. So, it could make credit card offers with the same regular APR to a group of consumers, but offer some consumers a plan that has a different default rate than the default rate it applies to most consumers who make a late payment, and not have to tell you that.
Barring one of the above exceptions or limitations, if the creditor does offer you an APR less favorable than what it offers to about 40% of other consumers it has to tell you this and provide you with the following information:
Required information for risk-based notice.
- the terms the creditor offers you are based on information from your credit report
- the terms it offers you may be less favorable than the terms it offers to consumers with better credit histories
- the identity of each consumer reporting agency providing the reports it used to compare you to others
- you have a right to a free copy of your credit report from the reporting agency if you ask for it within 60 days, and
- you have the right to dispute inaccurate information in your credit report.
Required information for credit score notice. If the creditor used a credit score, it must also provide you with the following information:
- the current credit score it relied on
- the date the credit score was created
- the range of possible credit scores
- the identity of the consumer reporting agency providing the score, and
- all the key factors that adversely affected your credit score (up to four; five if they include the number of inquiries as a factor).
The creditor can avoid giving you the actual credit score it relied on if instead it discloses to each consumer who requests credit either that person’s current credit score or the most recent credit score calculated by a credit reporting agency for the purpose of extending credit.
If the credit you are requesting does not have an APR, the same rules apply to the most important credit term in the contract is different for you than for others. For example, it might have to tell you that the utility service deposit it charges you is higher than what it charges others.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.