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Adverse Action Policy

Purpose:
The purpose of this policy is to establish guidelines for handling adverse actions in compliance with the Equal Credit Opportunity Act (ECOA), Regulation B, and the Fair Credit Reporting Act (FCRA). This policy ensures that customers who are denied credit or offered less favorable terms are treated fairly and are provided with the legally required notices and information.

1. Policy Statement

[Dealership Name] is committed to complying with all applicable laws and regulations regarding adverse actions in credit decisions. Adverse action decisions will be handled fairly, consistently, and transparently, and applicants will be informed of the reasons for such decisions as required by law.

2. Scope

This policy applies to all employees, contractors, and agents of [Dealership Name] involved in credit transactions, including evaluating credit applications, making credit decisions, and communicating with applicants.

3. Definitions

  • Adverse Action:

    • A denial or revocation of credit.
    • A refusal to grant credit in the amount or terms requested.
    • A decision to terminate an account or make an unfavorable change to the terms of an existing account.

  • Applicant: An individual who applies for credit, whether approved, denied, or otherwise impacted by a credit decision.

4. Procedures

4.1 Determining Adverse Action

An adverse action occurs when:

  • A credit application is denied.
  • Credit is approved on terms less favorable than those requested by the applicant (e.g., higher interest rates or lower loan amounts).
  • An existing credit arrangement is revoked or altered in a way that negatively affects the customer.

4.2 Adverse Action Notices

Required Notices:
For any adverse action taken, [Dealership Name] must provide the applicant with a written Adverse Action Notice that includes:

  1. Applicant’s Rights:
    • A statement that the applicant has the right to know the specific reasons for the adverse action if not already included in the notice.
    • Contact information for obtaining these reasons.
  2. Specific Reasons for Adverse Action:
    • The primary factors that led to the adverse action (e.g., insufficient income, poor credit history).
    • Reasons must be clear and specific, avoiding vague terms such as “insufficient qualifications.”
  3. Credit Bureau Information (if applicable):
    • If the decision was based on a credit report, include:
      • The name, address, and phone number of the consumer reporting agency.
      • A statement that the agency did not make the decision and cannot explain the reasons for it.
      • Instructions for obtaining a free copy of their report and disputing inaccuracies.

Delivery of Notices:

  • Provide written Adverse Action Notices within 30 days of the credit application decision.
  • Ensure notices are clear, accurate, and compliant with Regulation B and FCRA requirements.

4.3 Documentation

  • Maintain records of all adverse actions, including:
    • The applicant’s credit application.
    • Supporting documentation and evaluation criteria.
    • A copy of the Adverse Action Notice sent to the applicant.
  • Retain records for at least 25 months as required under Regulation B.

5. Prohibited Practices

Employees must not:

  • Fail to provide timely and accurate Adverse Action Notices.
  • Provide vague or misleading reasons for adverse actions.
  • Discriminate against applicants based on protected characteristics, including but not limited to race, color, religion, national origin, sex, marital status, age, or receipt of public assistance income.

6. Monitoring and Auditing

  • Conduct periodic audits to ensure compliance with adverse action requirements.
  • Review sample Adverse Action Notices for accuracy and compliance with regulatory requirements.

7. Employee Training

  • Train employees involved in credit transactions on:
    • Proper handling of adverse actions.
    • ECOA and FCRA requirements for adverse action notices.
    • Documentation and record retention procedures.

8. Penalties for Non-Compliance

Failure to comply with this policy may result in:

  • Regulatory penalties or legal consequences for the dealership.
  • Reputational damage to the dealership.
  • Disciplinary action for employees, up to and including termination of employment.

9. Policy Updates

This policy will be reviewed and updated annually or as changes to regulatory requirements or dealership practices occur.

Acknowledgment
I acknowledge that I have read and understand the Adverse Action Policy and agree to comply with its provisions.

Employee Signature: ___________________________
Date: ___________________________

Manager Signature: ___________________________
Date: ___________________________

This policy ensures that [Dealership Name] handles adverse actions in a compliant and fair manner while maintaining transparency and protecting the rights of applicants. Let me know if you’d like further customization or templates for Adverse Action Notices!