When is a credit union required to send an adverse action notice?

A credit union is required to send an adverse action notice whenever an adverse action is taken on a loan application. This requirement is rooted in consumer protection laws, specifically the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA).

When a loan application is submitted and the credit union decides to take an adverse action—such as denying the application, offering less favorable terms than requested, or even withdrawing a previously offered loan—it is essential to inform the applicant. This notification must include the reasons for the action and the applicant's right to obtain a copy of their credit report, if applicable.

This requirement serves several important purposes: it promotes transparency in the lending process, helps applicants understand their creditworthiness, and provides them with the opportunity to correct errors or improve their credit standing in the future.

While there are scenarios in which different types of notifications or communications may be appropriate, the specific obligation to provide an adverse action notice occurs whenever there is an adverse decision relating to a loan application.