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on February 28, 2013 FCRA Compliance

Adverse Action Notices: What are they, and when do I send them?

Adverse Action Letter resized 600

Employers and leasing managers use the results of background investigation reports in deciding whether to hire or lease a property out. If you are either of the above you need to be aware of the adverse action measures stated in the Fair Credit Reporting Act. Before you take any adverse action on the basis of consumer reports, you’ll need to send the applicant (consumer) a Pre-Adverse Action notice as well as copy of his/her consumer report and FCRA Summary of Rights. The second notice is called the Adverse Action notice, which is sent after the adverse action is taken.

Adverse action notices are usually used to notify applicants that they have been denied employment, tenancy, and other benefits due to their consumer report. The Fair Credit Reporting Act requires creditors to give adverse action notices to consumers whose reports were used to deny their applications. The important aspects of this include obtaining a consumer report and using it to make an adverse conclusion. This notice is therefore sent to a consumer after they have had an employment, loan or tenancy application denied.

Both the Pre-Averse Action and Adverse Action notice should have the name of the consumer reporting agency that furnished the report (the screening company) plus their contact information so the applicant can contact them for clarification or dispute.

When and how to send a Pre-Adverse Action and Adverse Action notice:

The Pre-Adverse and Adverse Action notice should always be in writing. The pre-adverse action is sent within three (3) business days from the date of the receiving the completed Consumer Report.

If the applicant does not dispute the pre-adverse action, than an adverse action notice should be sent within 5 business days from the date of the pre-adverse action.

The notices are required to:

• Make a person aware of an adverse action

• Contain the consumer reporting agency (CRA) name and contact information

• Include a statement that the consumer reporting agency did not make the decision to send the adverse action

• Make the consumer aware of their rights under the FCRA and option to obtain a free copy of their consumer report

• Make the consumer aware of their right to contest the report’s accuracy

There is no time provision by the FCRA of how long you should wait after sending the pre adverse action before sending the adverse action. But there should be enough time to allow a discussion of the report between the client and the employer.

The adverse action rules are meant to protect the consumer and to give them sufficient time to dispute the report. About 5 business days should be taken between sending the two notices. Failure to comply with these FCRA rules attracts penalties. For more information on compliance, check out this post: Adverse Action Notices: Common Compliance Questions

Remember the applicant is entitled to a free copy of their Consumer Report.

Here are the three most common reasons an applicant will request a copy of their consumer report:

  1. They have been notified of a potential adverse action or denied candidacy based on information contained in their consumer report (credit, criminal or other information)
  2. They been denied a rental unit, or were required to pay an additional security deposit (based on credit, criminal or other information)
  3. They dispute the accuracy or certify that the consumer report has inaccurate information due to fraud.

If you would like more information, or free sample compliance forms and document templates, please visit the VeriFirst FCRA and Background Screening Compliance Library.


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Ryan Howard

Vice President, Business Development at VeriFirst, a BYL Company

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