Under ECOA, what must lenders do if they deny credit?

Under the Equal Credit Opportunity Act (ECOA), if a lender denies credit, they are required to provide a notice of adverse action. This notice must include specific reasons for the denial or inform the applicant of their rights to obtain the reasons. This regulation ensures transparency and fairness in lending practices, allowing consumers to understand why their credit application was not approved, and if applicable, how they might improve their creditworthiness in the future.

The obligation to issue an adverse action notice is a key aspect of the ECOA, as it aims to prevent discrimination in lending decisions and maintain a fair and equitable process for applicants. By receiving this information, consumers can better assess their financial standing and take necessary actions, like addressing issues that contributed to the denial.

This requirement reflects the act’s purpose to promote equal access to credit and informs the denied applicant of their right to appeal or seek further clarification regarding the decision.