AFIP CERTIFIED. F&I PROFESSIONAL BASIC & SENIOR COURSE Required Supplemental Training with Quiz ADVERSE ACTION NOTICE REQUIREMENTS

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1 Association of Finance & Insurance Professionals AFIP CERTIFIED F&I PROFESSIONAL BASIC & SENIOR COURSE Required Supplemental Training with Quiz ADVERSE ACTION NOTICE REQUIREMENTS as mandated by The Equal Credit Opportunity Act and the Fair Credit Reporting Act THIS SUPPLEMENT IS PROVIDED AS AN INDUSTRY SERVICE BY:

2 DISCLAIMER: The attached article is a complimentary copy provided by Zurich, at no additional cost, to the Readers of F&I Management & Technology, strictly for informational purposes only. Zurich is not providing legal advice and assumes no liability concerning the information provided. Zurich neither endorses nor rejects the recommendations of the article as presented. Further, the information is for general distribution and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this article relates, we urge you to consult your own legal counsel.

3 READ THIS FIRST TO: Basic & Senior AFIP Certified F&I Professionals FROM: David Robertson Executive Director SUBJECT: F&I Procedure Changes Mandated Training The FTC has indicated it intends to enforce the adverse action notification requirements of the Fair Credit Reporting Act ( FCRA ) more vigorously than in the past. This supplement provides a review of the FCRA and the related Equal Credit Opportunity Act ( ECOA ) and the procedures dealership personnel must follow to ensure compliance. This information is drawn from the National Automobile Dealers Association s (NADA s) A Dealer Guide to Adverse Action Notices and from material compiled by the law firm of Hudson Cook, LLP. In addition to the review, this supplement provides appendices with sample forms and a 25-question quiz. AFIP recommends that dealerships use NADA s simplified Adverse Action Notice form included as Appendix B.* The other sample Notices, which also are set forth in the NADA guide, are taken directly from regulations issued by the Federal Reserve Board. You must comply with the law every time a customer s request for credit is denied. The required procedures are not the result of new legislation or FTC policy, but are in recognition of the fact that the existing notification rules imposed by the FCRA are not always being met in the processing of vehicle purchase-related requests for credit. As an AFIP Certified F&I Professional, you are required to read this material, post a minimum score of 80% on the quiz, and integrate the procedures into your daily F&I routine. The requirements addressed herein should be implemented immediately. Keep in mind that your state laws may impose requirements different from, and that may supersede, those established by the ECOA and FCRA. Also, it s always better to err on the side of caution. If you re not sure whether to file a Form 8300, for example, you should go ahead and file. Within the realm of common sense, the same logic applies to issuing Adverse Action Notices. There is no penalty for a Notice issued in error. DISCLAIMER: The information provided is a training supplement for the AFIP Certified F&I Professional program. It is not offered as, nor can it be construed to be, legal advice. The action taken by dealership personnel relative to the ECOA and FCRA should be based on advice of competent counsel and company policy. This material was reviewed by Jean Noonan, Esq., of Hudson Cook, LLP and James S. Ganther, Esq., of Mosaic Interactive, LLC. *NADA s simplified adverse action notice form appears at Appendix B of NADA s A Dealer Guide to Adverse Action Notices. Appendix B and Appendix C of the NADA guide are reprinted with the express permission of NADA. NADA has not reviewed, and does not offer a legal opinion on, any portion of this AFIP publication.

4 ADVERSE ACTION NOTICE REQUIREMENTS As mandated by the ECOA & FCRA DEFINITIONS Adverse Action The denial of a request for credit relative to the dollar amounts, APR, and terms contained in the verbal or written application. Note that the test extends beyond the initial turndown. If a counteroffer is made containing less advantageous terms and conditions, and the customer doesn t accept the counteroffer, this also qualifies as an adverse action. Consumer Report The information provided in a credit report or contained in a credit score issued by a credit bureau. Counteroffer A rejection of the initial terms and conditions of the transaction and an offer on different terms, such as a different APR, downpayment, monthly payment, repayment term, including the vehicle selected for purchase, or other material alteration of the original deal. If the customer accepts the counteroffer, there is no need to issue an Adverse Action Notice. If the customer rejects the final counteroffer, then an Adverse Action Notice must be issued. Creditor A person who regularly extends consumer credit and is the person to whom the debt arising from the consumer credit transaction is initially payable. Since a dealership is the creditor at the time the installment sale agreement is consummated, ECOA and FCRA rules apply. Credit Information From a Third Party (Other Than a Credit Reporting Agency) Credit related information obtained from an employer, landlord or other credit reference provided by the customer. Participating Creditor A creditor who makes decisions relative to the funding of vehicles and/or participates as a wholesale buyer of dealer paper. A dealership is a participating creditor if it participates in a credit granting decision. If a dealership qualifies as a participating creditor under the ECOA, and a consumer credit report was used in the course of denying credit, then an Adverse Action Notice must also be issued in accordance with the FCRA. Referring Creditor An entity that simply directs customers to available credit sources and is not required to issue Adverse Action Notices.

5 GENERAL REQUIREMENTS Conditions under which the ECOA requires the issuing of an Adverse Action Notice (If any of the situations below occur, an Adverse Action Notice must be issued.) Based on the information provided in a credit application, whether received in person or by telephone, a dealer cannot find a lending source willing to accept assignment of the installment sale agreement. A vehicle is spot delivered and no funding source will accept the original terms of the deal, unless the dealer, customer, and lending source agree to different terms. The deal is based on specific credit terms (a 72-month repayment period) and the customer rejects a counteroffer (a 60-month repayment period). An Adverse Action Notice is not required if the finance company accepts the terms of the credit under the conditions agreed to by the customer. Also, in cases where a counteroffer is made representing terms and conditions that differ from the original deal and the customer accepts the counteroffer no Adverse Action Notice is required. Conditions under which the FCRA requires the issuing of an Adverse Action Notice (If any of the situations below occur, an Adverse Action Notice must be issued.) The information in a credit report is the basis for denying the customer s credit. The information provided by a third party, other than a credit reporting agency, such as an employer or landlord, is the basis for denying credit. In such cases, additional notification information required by the FCRA must be provided to the customer. It is permissible to combine the notice information mandated by the ECOA and the FCRA in one form. Applying the regulatory requirements to actual situations: 1. Upon receipt of a credit application and credit bureau report, it is learned that the customer s BEACON score of 325 is below the published thresholds of any lenders available to the dealer. In this case, a decision is made in-house not to submit the application and the parameters of the deal to any lending sources. The decision to deny the credit is made by someone at the dealership. An Adverse Action Notice containing the ECOA and FCRA information is required. 2. Upon receipt of a credit application and credit bureau report, it is apparent that the original parameters of the deal must be altered to find a willing funding source. The deal is renegotiated before the new agreed-to terms are submitted to a lending source. If the request for credit is denied, the dealer must issue an Adverse Action Notice containing the ECOA and FCRA information. Helpful Tip: You are required to issue an Adverse Action Notice if you cannot find a lending source willing to accept the credit terms posted to the original deal. Also, if the deal is based on the customer s request for a specific APR, downpayment, repayment term, and other relevant factors and the request for credit under the parameters of the agreed-to deal is denied an Adverse Action Notice must be issued. For example, in negotiating the deal, a customer will only accept the dealership-arranged funding if an APR of 5% can be secured. If no lending source is willing to accept the deal at the requested APR but a lender will accept it at a higher APR and the customer does not accept the higher rate, then an Adverse Action Notice

6 must be issued. This standard applies regardless of whether the decision to deny the credit was made by a dealership employee or a lending source. Counteroffer Exception If, in the situations above, a counteroffer was made to establish conditions acceptable to a lender and the dealership, and the customer agreed to the counteroffer, then no Adverse Action Notice is required. If the customer rejected the terms of the counteroffer, a Notice would be required. As is generally the case, a credit application is shopped with two or more lending sources. Please note the following scenarios: 1. A request for credit is sent to three sources. Two deny the request, but one will accept it on terms unacceptable to the selling dealership. The dealership elects not to do the deal, in effect denying the credit. Since the dealership decided not to offer credit, the dealership is responsible for issuing an Adverse Action Notice. (It is likely that the two credit sources who denied the credit would send Notices as well.) 2. A request for credit is sent to three sources. In this case, all three decline the request for credit. While all three of the lending institutions should issue Notices, the dealership cannot rely on their Notices to meet the dealership s Notice obligation. The dealership should issue an Adverse Action Notice as well. (There is no prohibition against issuing duplicate Notices.) 3. A request for credit is sent to three sources. Two decline the request and one accepts the request based on the terms agreed to by the customer. Since the creditor accepted the terms agreed to by the customer (and the transaction is consummated), the dealership is not required to issue an Adverse Action Notice. (The creditors denying the credit would probably issue Notices, because they would not know the consumer received financing from another lending source.) Business-related Adverse Action Notices The Fair Credit Reporting Act doesn t address business-related vehicle purchase transactions. The ECOA, however, mandates different procedures depending on whether the company s gross annual income exceeds $1 million or is below that threshold. The F&I practitioner must ask each business applicant whether the business posts gross annual revenue of more than $1 million, record the response and follow the appropriate procedures outlined below. If the gross annual income is $1 million or less: The Notice can be delivered orally or in writing within 30 days of receipt of the credit application. As with consumer transactions, the Notice must state that the business can request a disclosure of the specific reasons for the denial within 60 days. The business has the right to have the reasons confirmed in writing within 30 days after the creditor receives the company s written request. You must also give the ECOA anti-discrimination statement (see sample forms in the appendices). In cases where the application is made solely by phone, you may satisfy the Notice and disclosure requirements by giving an oral statement of the action taken and the business s right to a statement of the reasons for adverse action. The ECOA also mandates different record retention requirements for business transactions. If gross revenues are $1 million or less, the records must be kept on file for one year after notifying the business of the credit

7 decision. In cases where the business posts gross annual revenue in excess of $1 million: The Adverse Action Notice can be delivered orally or in writing within a reasonable time. If the business makes a written request for the reasons for denial within 60 days of notification, a written statement and the ECOA anti-discrimination notice must be provided. Records must be kept on file for 60 days after notifying the business of the credit denial. In cases where the business requests that records be kept for a longer period of time, or has requested a written statement of denial, the records must be maintained for one year. Consumer-related Transactions Adverse Action Notice Time Requirements If the dealership cannot arrange for the requested financing, a Notice must be sent to the customer within 30 days of receipt of the application. If a counteroffer is deemed to be unacceptable by the customer, the Notice must be sent to the customer within 90 days after delivering the counteroffer. In the case of incomplete applications (information needed to process the application is missing), if no Notice of Incompleteness is sent, the Notice must be sent to the customer within 30 days of receipt of the incomplete application. The content of the Adverse Action Notice will fall beyond the purview of the F&I department. However, the ECOA requires that a statement of the specific reason for the action be included in the Notice. As an alternative, a simplified Notice can be used that contains language notifying the customer of his right to receive a statement if the request is made within 60 days of the Notice. Since the simplified Notice requires that the individual responsible for issuing the statement of reasons be identified, care must be taken in selecting the individual assigned this task. AFIP recommends that a corporate officer fully versed in F&I practices and the requirements set forth in the ECOA and FCRA an F&I Director or Comptroller be designated as the source. In addition, the dealer principal, competent counsel, and those responsible for F&I operations should consult the Federal Reserve Board s model forms (reprinted at Appendix C) and NADA s simplified Adverse Action Notice derived from these forms (reprinted at Appendix B) in developing a roster of acceptable reasons for denial. In cases where a request for credit was denied by one or more funding sources, and the dealership s action was based solely on the reasons cited by the lenders, the stated cause(s) for denial reported by the dealership should mirror those provided by the lenders. However, if a dealership employee made a credit decision by denying the request, the basis for doing so should ordinarily be limited to the reasons noted in the model forms. The Equal Credit Opportunity Act is very specific as to what constitutes discriminatory practices, and care must be taken to ensure that the decision was based on the customer s credit worthiness and not any personal characteristics. If, after receiving a written Adverse Action Notice, the consumer requests the reasons for denial, a dealership employee may give those reasons orally. The dealership must tell the consumer that the dealership will confirm, in writing, any reasons given orally if the consumer requests written confirmation of the reasons within 60 days.

8 Helpful Tip: While the volume of dealership-generated Adverse Action Notices may be relatively high, in cases where the simplified version is used, it is anticipated that the number of customers making the request will be smaller. As such, it should be possible to devote the time required to conduct a full review of the facts, make a determination of the reason for denial, and subject this decision to a second source for review before issuing the statement to the customer. Notification Requirements The ECOA does not specify how the Notices are to be delivered. They can be delivered in person, by regular mail, by fax or electronically. Please note that an electronic version of the Notice can only be used if the creditor complies with the Electronic Signatures in Global and National Commerce Act (E-Sign Act) and the ECOA and has obtained, prior to transmitting the Notice, the customer s permission to receive the Notice electronically. Content of the FCRA Notice The FCRA portion of the Adverse Action Notice has two parts. First, it must identify and provide contact information for the credit reporting agency that provided the report. Include the agency s mailing address and toll-free telephone number. Adding the website address is also a good idea, because many consumers find it easier to request a file disclosure online. Second, the FCRA requires the Adverse Action Notice to include these specific disclosures: That the credit decision was based wholly or in part on the information contained in the report issued by the credit reporting agency. That the credit reporting agency did not make the credit decision and is unable to provide the consumer with the specific reasons the adverse action was taken. That the customer has a right to obtain a free copy of his or her credit report from the credit reporting agency if the request is made within 60 days of receiving the Notice. That the customer has the right to question the accuracy or completeness of the information contained in the customer s report. If a credit decision was based wholly or in part on information obtained from a third party (other than a credit reporting agency), this fact must be stated. Third-party information may include assessments of the customer s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. In addition, a statement must be included that the customer may, within 60 days of receipt of the Adverse Action Notice, make a written request for the disclosure of the nature of this information. The creditor must respond in writing within 30 days of receipt of the request. The Requirements Regarding Incomplete Applications Since the issuance of a Notice may depend on whether an application has been submitted, procedures should be established for addressing incomplete credit applications. The dealership may, within 30 days of receipt of an incomplete application, issue either an Adverse Action Notice or a Notice of Incompleteness. If the dealership uses a Notice of Incompleteness, the Notice must request in writing the required additional information, provide a reasonable timeframe within which the customer must respond, and state that the request for credit will not be considered until the missing information is provided.

9 Recordkeeping Requirements Under the ECOA, the following documents must be kept on file for 25 months after the dealership notifies the consumer of credit approval, adverse action, or application incompleteness: a copy of the credit application a copy of the credit report documents verifying notice to the customer, including notes and computer records showing that the written or oral notice was given statements giving the reasons for denying credit, including those cited by the simplified Adverse Action Notice (statements given to the customer or found in internal memoranda), and any written statements submitted by the customer alleging a violation of the ECOA. While the retention period generally starts near the time the purchase-related activity occurs, in cases of a missing information request, it may start well after the initial contact with the customer. The dealership may keep paper or electronic copies of these documents. AFIP recommends that they be stored securely, because privacy rules require dealerships to maintain physical, administrative, and technical safeguards of customers personal information. Also note that if the dealership is notified that it is under investigation or subject to an enforcement proceeding relating to ECOA or Regulation B, it must retain these records until the matter is resolved or the court grants permission for their disposal. Important note regarding dead deal recordkeeping requirements The record retention obligation also applies to credit applications that were received but then withdrawn, and credit approvals, even when the consumer did not complete the transaction. The FCRA does not impose record retention requirements, though it is suggested that these records be maintained as well. Since the FCRA allows claims for violations to be filed five years after the date on which the alleged violation occurred, the records should be maintained, on the advice of competent counsel, for a reasonable period of time. Penalties Any creditor failing to comply with a requirement imposed by the ECOA or Reg. B is subject to civil liability for actual and punitive damages in individual or class actions. Dealerships may be liable for punitive damages up to $10,000 in individual actions, and up to $500,000, or one percent of the creditor s net worth, whichever is less, in class actions. A successful applicant may recover court costs and reasonable attorney s fees. A dealership s liability under the FCRA can be divided into two categories: (i) civil liability to a consumer for noncompliance with the FCRA, and (ii) exposure to civil penalties in enforcement actions brought by federal or state authorities. A dealership can be civilly liable to a consumer for either willful or negligent noncompliance with the FCRA. A dealership found to have willfully violated the FCRA is liable to affected consumers in an amount equal to the sum of (i) any actual damages sustained by the consumer as a result of the violation or statutory damages of not less than $100, nor more than $1,000, per violation; (ii) such punitive damages as the court may allow; and (iii) in a successful action by the consumer, the costs of the action together with reasonable attorney s fees as determined by the court. A dealership found to have negligently violated the FCRA is liable to affected

10 consumers in an amount equal to the sum of (i) any actual damages sustained by the consumer as a result of the violation; and (ii) in a successful action by the consumer, the costs of the action together with reasonable attorney s fees as determined by the court. Currently, courts are divided on whether amendments to the FCRA in 2003 eliminated consumers rights to sue for FCRA Adverse Action Notice violations. AFIP recommends careful compliance with FCRA adverse action requirements, nonetheless. Regardless of how the issue of civil liability to consumers is resolved by the courts, the dealership may also be liable for civil penalties in a civil enforcement action brought by the Federal Trade Commission or the relevant state Attorney General.

11 NOTES:

12 AFIP CERTIFICATION COURSE ECOA / FCRA ADVERSE ACTION NOTICE QUIZ The correct answers to the quiz can be found on the back cover of this booklet. The AFIP passing threshold of 80% applies. Keep at it until you fully understand the reasons behind the correct answers. 1. The changes in dealership practices required by the adverse action reporting rules mandated by the Fair Credit Reporting Act are the result of new legislation enacted by Congress. a. True b. False 2. The policy changes required in order to comply with the FCRA are effective: a. July 1, 2007 b. January 1, 2008 c. Immediately 3. According to the FCRA, a dealer must issue an Adverse Action Notice if the request for credit was denied based on: a. The information provided by a credit reporting agency b. Information provided by a third party (e.g., an employer or landlord) c. a and b d. None of the above 4. The adverse action reporting requirements for Notices issued in accordance with the FCRA must contain: a. A statement that the adverse credit decision was based in whole or in part on information obtained from a credit reporting agency. b. The contact information for the credit reporting agency that provided the report. c. A statement that the credit reporting agency did not make the decision. d. Notice of the consumer s right to obtain a free copy of his or her credit report from the credit reporting agency, if requested within 60 days after receiving the Notice. e. Notice of the customer s right to dispute the accuracy or completeness of any consumer report information with the credit reporting agency. f. All of the above. g. All of the above, except. h. None of the above. 5. In the course of a transaction, a customer completes a credit application. Based on negative information contained in the application, a decision is made by an employee of the dealership to deny credit without securing a credit report or sending the deal to a funding source for approval. The dealer: a. Has an obligation to issue an Adverse Action Notice as required by the ECOA. b. Has no obligation to issue an Adverse Action Notice under the ECOA. c. Has an obligation to issue an Adverse Action Notice as required by the FCRA. d. Has no obligation to issue an Adverse Action Notice under the FCRA. e. a and c f. a and d

13 6. In the course of a transaction, a customer completes a credit application and the dealer secures a credit report. Based on negative information contained in the credit report, a decision is made by an employee of the dealership to deny credit without sending the deal to a funding source for approval. The dealer: a. Has an obligation to issue an Adverse Action Notice as required by the ECOA. b. Has no obligation to issue an Adverse Action Notice under the ECOA. c. Has an obligation to issue an Adverse Action Notice as required by the FCRA. d. Has no obligation to issue an Adverse Action Notice under the FCRA. e. a and c f. b and c 7. In negotiating the in-store funding arrangements, the customer will accept the deal if he only has to tender $1,000 as a downpayment. Based on the information contained in the customer s credit report and the parameters of the deal, a funding source will only approve the transaction with a $3,000 downpayment which the customer will not agree to. Because the funding source approved the deal with only a slight alteration in the terms, the dealer is not required to issue an Adverse Action Notice. a. True b. False 8. A customer completes a credit application and the dealer secures a credit report. Due to the low credit score, the F&I person makes a maximum effort to find a lender willing to accept the deal. The deal is shopped with five primary lending sources and three secondary lenders. All eight deny the request for credit. a. Since all eight lenders will issue Adverse Action Notices, the dealer has no obligation; it would just beat down the customer by sending a ninth Notice. b. The dealer has an obligation to issue a Notice. 9. The same circumstances noted in question 8 occur, except in this case one of the lenders accepts the deal as submitted and the credit transaction is consummated. In this case, the dealer: a. Is required to issue an Adverse Action Notice in response to the seven lenders who denied the credit. b. Has no obligation to issue an Adverse Action Notice because the deal was consummated as submitted. 10. A funding source will approve the deal based on specific changes in the terms originally submitted. If the customer agrees to the conditions of the counteroffer, the dealer: a. Must issue an Adverse Action Notice. b. Does not need to issue an Adverse Action Notice. 11. The F&I person is in possession of a credit application that is missing information, without which the application cannot be sent for review. In this case, the F&I practitioner can: a. Send the customer a written Adverse Action Notice within 30 days. b. Send the customer a written Notice of Incompleteness, noting the items needed to complete the application, establishing a reasonable time to respond, and stating that the application will not be processed unless the requested information is provided. c. Either a or b

14 12. The customer is purchasing a vehicle for use in his business, and corporate credit information is used to complete the credit application. In this case, the F&I practitioner, in accordance with the ECOA, must ask and record: a. Whether the business is registered with the state Department of Commerce. b. Whether the business posts a gross annual income of $1 million or less. c. Whether the business is a member of NAFTA (North American Free Trade Agreement). d. All of the above, except. e. All of the above. 13. Based on the customer s credit history, the request for credit is denied by all the funding sources who reviewed the deal and no counteroffer was made. In this case, the dealer issued a simplified Adverse Action Notice. Ninety days after receipt of the notice, the customer makes a written request for an explanation as to why credit was denied. The dealer: a. Must comply with the customer s request as required by the FCRA. b. Must comply with the customer s request as required by the ECOA. c. Has no obligation to comply with the request, although a business decision might be made to honor it. 14. According to the FCRA, a customer can bring a claim under the Act seven years after the date on which the alleged violation occurred. a. True b. False 15. The ECOA requires that specific documents be retained for: a. 12 months from the date of the application. b. The same record retention period mandated by Regs. Z and M. c. 25 months from the date of the application. d. No specific length of time. The ECOA does not specify a term, only that records should be retained during the installment sale agreement repayment period. 16. A copy of the credit report used to evaluate the customer s credit should be included in the documents that are kept on file to comply with the ECOA. a. True b. False, only a copy of the credit application is to be kept on file. 17. Under the ECOA, the Adverse Action Notice must include the specific reason credit was denied such as the applicant s delinquent credit obligations or disclose the applicant s right to a specific statement of the reasons if requested within 60 days of the Adverse Action Notice. a. True b. False 18. A creditor must provide the consumer with an Adverse Action Notice any time the creditor denies credit, or refuses to grant credit in substantially the amount or the terms requested by the consumer. a. True b. False

15 19. Under the FCRA, an Adverse Action Notice must include the name, address, and telephone number of the credit reporting agency that furnished the report, along with a statement that the credit reporting agency was responsible for making the decision to take adverse action, and that the consumer can contact the agency to find out the specific reasons for the decisions. a. True b. False 20. Violations of the ECOA can subject dealerships to liability for: a. Actual damages suffered by consumers. b. Punitive damages up to $10,000 in an individual action. c. Punitive damages up to $500,000, or up to 1% of the dealership s net worth, whichever is less, in class actions. d. All of the above. 21. Willful violations of the FCRA can expose dealerships to liability for: a. Actual damages suffered by consumers. b. Statutory damages of not less than $100, nor more than $1,000, per violation. c. Either a or b 22. Willful violations of the FCRA can also expose dealerships to liability for: a. Punitive damages. b. Court costs. c. Attorney s fees. d. All of the above. 23. Violations of the FCRA can expose dealerships to civil penalties in actions brought by federal or state authorities. a. True b. False 24. Negligent violations of the FCRA can expose dealerships to liability for: a. Actual damages suffered by consumers. b. Court costs. c. Attorney s fees. d. All of the above. e. a and c 25. Your dealership s Adverse Action Notices should be reviewed by competent counsel. a. True b. False

16 Appendices Appendix A Web address where the Federal Reserve Board s sample Adverse Action Notice templates are posted Appendix B NADA s Simplified Adverse Action Notice recommended by AFIP Appendix C Sample FRB Adverse Action Notice templates (referenced in Appendix A) as set forth in NADA s A Dealer Guide to Adverse Action Notices.

17 Appendix A The Federal Reserve Board provides sample Adverse Action Notice templates in Appendix C of Regulation B at the following address: Other sites of interest: Re: ECOA html Re: FCRA (As noted above and elsewhere in this document, AFIP recommends that dealerships use NADA s simplified Adverse Action Notice provided in Appendix B, rather than the Federal Reserve Board templates.)

18 Appendix B Reprinted With Permission from the National Automobile Dealers Association

19 Reprinted With Permission from the National Automobile Dealers Association

20 Appendix C The Federal Reserve Board has provided the following templates to assist creditors in creating notices that comply with the ECOA and the FCRA. You must modify these samples to fit your business. Contact an attorney who is familiar with the law governing adverse action notices and your dealership s operations for guidance on appropriate notification forms and procedures for your business. A. SAMPLE NOTICE OF ACTION TAKEN AND STATEMENT OF REASONS Statement of Credit Denial, Termination or Change Date: Applicant s Name: Applicant s Address: Description of Account, Transaction, or Requested Credit: Description of Action Taken: Part I PRINCIPAL REASON(S) FOR CREDIT DENIAL, TERMINATION, OR OTHER ACTION TAKEN CONCERNING CREDIT. This section must be completed in all instances. Credit application incomplete Insufficient number of credit references provided Unacceptable type of credit references provided Unable to verify credit references Temporary or irregular employment Unable to verify employment Length of employment Income insufficient for amount of credit requested Excessive obligations in relation to income Unable to verify income Length of residence Temporary residence Unable to verify residence No credit file Limited credit experience Poor credit performance with us Delinquent past or present credit obligations with others Collection action or judgment Garnishment or attachment Foreclosure or repossession Bankruptcy Number of recent inquiries on credit bureau report Value or type of collateral not sufficient Other, specify:

21 Part II DISCLOSURE OF USE OF INFORMATION OBTAINED FROM AN OUTSIDE SOURCE. This section should be completed if the credit decision was based in whole or in part on information that has been obtained from an outside source. Our credit decision was based in whole or in part on information obtained in a report from the consumer reporting agency listed below. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency. Name: Address: [Toll-free] Telephone number: Our credit decision was based in whole or in part on information obtained from an affiliate or from an outside source other than a consumer reporting agency. Under the Fair Credit Reporting Act, you have the right to make a written request, no later than 60 days after you receive this notice, for disclosure of the nature of this information. If you have any questions regarding this notice, you should contact: Creditor s name: Creditor s address: Creditor s telephone number: NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC

22 B. SAMPLE NOTICE OF ACTION TAKEN AND STATEMENT OF REASONS Date: Dear Applicant: Thank you for your recent application. Your request for [a loan/a credit card/an increase in your credit limit] was carefully considered, and we regret that we are unable to approve your application at this time, for the following reason(s): Your Income: is below our minimum requirement. is insufficient to sustain payments on the amount of credit requested. could not be verified. Your Employment: is not of sufficient length to qualify. could not be verified. Your Credit History: of making payments on time was not satisfactory. could not be verified. Your Application: lacks a sufficient number of credit references. lacks acceptable types of credit references. reveals that current obligations are excessive in relation to income. Other: The consumer reporting agency contacted that provided information that influenced our decision in whole or in part was [name, address and [toll-free] telephone number of the reporting agency]. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency. Any questions regarding such information should be directed to [consumer reporting agency]. If you have any questions regarding this letter, you should contact us at [creditor s name, address and telephone number]. NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC

23 C. SAMPLE NOTICE OF ACTION TAKEN AND STATEMENT OF REASONS (CREDIT SCORING) Date: Dear Applicant: Thank you for your recent application for. We regret that we are unable to approve your request. Your application was processed by a credit scoring system that assigns a numerical value to the various items of information we consider in evaluating an application. These numerical values are based upon the results of analyses of repayment histories of large numbers of customers. The information you provided in your application did not score a sufficient number of points for approval of the application. The reasons you did not score well compared with other applicants were: Insufficient bank references Type of occupation Insufficient credit experience Number of recent inquiries on credit bureau report In evaluating your application the consumer reporting agency listed below provided us with information that in whole or in part influenced our decision. The consumer reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. It can be obtained by contacting: [name, address, and [toll-free] telephone number of the consumer reporting agency]. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency. If you have any questions regarding this letter, you should contact us at Creditor s Name: Address: Telephone: Sincerely, NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (with certain limited exceptions); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC

24 D. SAMPLE NOTICE OF ACTION TAKEN, STATEMENT OF REASONS AND COUNTEROFFER Date: Dear Applicant: Thank you for your application for. We are unable to offer you credit on the terms that you requested for the following reason(s):. We can, however, offer you credit on the following terms:. If this offer is acceptable to you, please notify us within [amount of time] at the following address: Our credit decision on your application was based in whole or in part on information obtained in a report from [name, address and [toll-free] telephone number of the consumer reporting agency]. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency. You should know that the federal Equal Credit Opportunity Act prohibits creditors, such as ourselves, from discriminating against credit applicants on the basis of their race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract), because they receive income from a public assistance program, or because they may have exercised their rights under the Consumer Credit Protection Act. If you believe there has been discrimination in handling your application you should contact the the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC Sincerely,

25 E. SAMPLE DISCLOSURE OF RIGHT TO REQUEST SPECIFIC REASONS FOR CREDIT DENIAL Date: Dear Applicant: Thank you for applying to us for. After carefully reviewing your application, we are sorry to advise you that we cannot [open an account for you/ grant a loan to you/increase your credit limit] at this time. If you would like a statement of specific reasons why your application was denied, please contact [our credit service manager] shown below within 60 days of the date of this letter. We will provide you with the statement of reasons within 30 days after receiving your request. Creditor s Name: Address: Telephone Number: If we obtained information from a consumer reporting agency as part of our consideration of your application, its name, address, and [toll-free] telephone number is shown below. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. [You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency.] You have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you received is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency. You can find out about the information contained in your file (if one was used) by contacting: Consumer reporting agency s name: Address: [Toll-free] Telephone number: Sincerely, NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC

26 F. SAMPLE NOTICE OF INCOMPLETE APPLICATION AND REQUEST FOR ADDITIONAL INFORMATION Creditor s name: Address: Telephone number: Date: Dear Applicant: Thank you for your application for credit. The following information is needed to make a decision on your application:. We need to receive this information by (date). If we do not receive it by that date, we will regrettably be unable to give further consideration to your credit request. Sincerely, G. SAMPLE NOTICE OF ACTION TAKEN AND STATEMENT OF REASONS (BUSINESS CREDIT) Creditor s Name: Creditor s address: Date: Dear Applicant: Thank you for applying to us for credit. We have given your request careful consideration, and regret that we are unable to extend credit to you at this time for the following reasons: (Insert appropriate reason, such as: Value or type of collateral not sufficient; Lack of established earnings record; Slow or past due in trade or loan payments) Sincerely, NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC

27 H. SAMPLE DISCLOSURE OF RIGHT TO REQUEST SPECIFIC REASONS FOR CREDIT DENIAL GIVEN AT TIME OF APPLICATION (BUSINESS CREDIT) Creditor s name: Creditor s address: If your application for business credit is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please contact [name, address and telephone number of the person or office from which the statement of reasons can be obtained] within 60 days from the date you are notified of our decision. We will send you a written statement of reasons for the denial within 30 days of receiving your request for the statement. NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Trade Commission at Federal Trade Commission, Equal Credit Opportunity, Washington, DC I. SAMPLE DISCLOSURE OF RIGHT TO RECEIVE A COPY OF AN APPRAISAL You have the right to a copy of the appraisal report used in connection with your application for credit. If you wish a copy, please write to us at the mailing address we have provided. We must hear from you no later than 90 days after we notify you about the action taken on your credit application or you withdraw your application. [In your letter, give us the following information:] J. SAMPLE DISCLOSURE ABOUT VOLUNTARY DATA NOTATION We are requesting the following information to monitor our compliance with the federal Equal Credit Opportunity Act, which prohibits unlawful discrimination. You are not required to provide this information. We will not take this information (or your decision not to provide this information) into account in connection with your application or credit transaction. The law provides that a creditor may not discriminate based on this information, or based on whether or not you choose to provide it. [If you choose not to provide the information, we will note it by visual observation or surname].