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Monday, May 25, 2009

15 U.S.C. 1681a - part 5

Continuing with our discussion of 15 U.S.C. 1681a (i.e. the definition section of the Fair Credit Reporting Act), the next definition is an important one in that it defines what constitutes an "adverse action" -

"(k) Adverse Action

(1) Actions included. The term 'adverse action'

(A) has the same meaning as in section 701(d)(6) of the Equal Credit Opportunity Act; and"

[701(d)(6) of th ECOA reads as follows: "For purposes of this subsection, the term 'adverse action' means a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested. Such term does not include a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where such additional credit would exceed a previously established credit limit."

In other words, examples of an adverse action include where a consumer's credit application is denied, where the consumer's existing credit account is messed with by the creditor in an adverse way (i.e. lowering of the credit limit, closing of the account completely or raising of the interest rate), or where a consumer requests one amount of credit but is granted a lesser amount.]

"(B) means

(i) a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance;"

[Adverse actions also include denials of insurance applications or unfavorable changes in the amount of existing insurance coverage or an increase in the cost of existing insurance (i.e. your premium goes up because of the contents of your consumer report)].

"(ii) a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee;"

[Adverse actions also include denials of employment applications, or demotions, pay reductions or other adverse changes to an employment relationship that are based upon a consumer report.]

"(iii) a denial or cancellation of, an increase in any charge for, or any other adverse or unfavorable change in the terms of, any license or benefit described in section 604(a)(3)(D) [Section 1681b]; and"

[1681(a)(3)(D) relates to licenses or other benefits granted by governmental entities where the governmental entity is required by law to consider an applicant's financial responsibility or status. I will cover this in greater detail when we get to section 1681 but I think this section relates to financial benefits like disability or welfare benefits.]

"(iv) an action taken or determination that is

(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, or in connection with a review of an account under section 604(a)(3)(F)(ii)[section 1681b]; and

(II) adverse to the interests of the consumer."

[This is the catch all for adverse actions that do not fall under one of the usual examples of adverse actions. Basically, if a consumer applies for something and does not get it because of the contents of his or her consumer report, it is an adverse action. As indicated by this section, this also includes where existing creditors do periodic reviews of its customers' credit reports and find something that makes the creditor want to reduce its risk by lowering credit limits, closing accounts or increasing interest rates.]

"(2) Applicable findings, decisions, commentary, and orders. For purposes of any determination of whether an action is an adverse action under paragraph (1)(A), all appropriate final findings, decisions, commentary, and orders issued under section 701(d)(6) of the Equal Credit Opportunity Act by the Board of Governors of the Federal Reserve System or any court shall apply."

[This section just takes advantage of prior decisions defining adverse actions made by Courts and the Board of Governors of the Federal Reserve System. As a result, the FCRA's definition of "adverse action" did not have to start from scratch.]

The next installment will cover the definition of "firm offer of credit or insurance", another important definition in the FCRA.

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