Why Should I Care About an Adverse Action Notice? - YouTube

Today's Common Sense Compliance Question is, " What is an Adverse Action Notice, and why

do we care?"

First of all, Adverse Action is a refusal to grant credit in substantially the amount,

or substantially the terms, in which the customer requested,

unless a counter offer is accepted by the customer.

Congress wanted people to know why they were denied credit.

So, an applicant who was denied must receive an adverse action notice within thirty days,

although many dealerships do this right when the customer is still there.

The Adverse Action notice must contain, the creditors name and address must be in writing,

and either a statement for the reason for denial of credit, or a disclosure that says the

customer can receive reason for denial within sixty days of written request.

Many dealerships rely on the lenders Adverse Action to identify what the reason was for

the denial.

So many dealerships use the Adverse Action form that just states that the customer has

the right to request it.

And that's fine in most cases, but sometimes it can cause a problem.

More on that later..

So first let me talk a little about why we are called a participating creditor, because

some people still don't believe that's the case.

Well, we are.

Here are some things that will hopefully clear it up for you.

Does your dealership desk negotiate down payments?

Do they negotiate the term, number of months?

Does your F&I department produce- do your producers do they ever mark up the buy rates?

(Inaudible) stated that when a dealership sets terms like APR, Down Payments, Number

of Months, things like that - that they are the participating creditor.

Some courts have even gone as far as to say just by the F&I producer signing the Sales

Installment Contract, we are, in fact, a participating creditor.

So this has been through the courts plenty, so let me just finish this with this.

Unless you never negotiate down payment, APR, or mark it up, or any of those terms, you

are most likely a participating creditor.

Which means, we need to give out Adverse Action Notices.

It is not good enough just to rely on our lenders adverse action notices, we have to

give them too.

So, let me give you an example of how this might become a bit of a problem.

Let's say we have a sales manager, ok, who happens to look at a credit application, and

they look and they see the customer does not make enough income based on this lender's

guidelines.

This happens quite often, a manager will come out and talk to the consumer, hopefully get

a co-signer.

But in this case let's say there was no co-signer and he tells the customer that we can't help

them.

So, once the sales manager sends that customer home and says we cannot help you get finance,

um, there should have been an Adverse Action Notice then and there.

In this particular case, the Sales Manager was the sole creditor because he never even

sent it in to the finance company.

Which, by the way, is not a best practice.

This could solve several problems.

First of all, the sales manager's know when they need to send out an adverse action notice.

DO they know they're actually making a credit decision when they decide not to send an application?

Secondly, what Adverse Action Notice does this particular sales manager do in this particular

case?

Remember I said many dealerships use the Adverse Action Notice that does state the specific

reason for denial.

That's fine, however, remember it also states the consumer has the right to know what that

reason is for denial if they request it.

Well, what's gonna happen if this customer comes back to the dealership and requests

the reason for denial.

There's no record, we never sent it in to a lender, it's gonna be tough.

So what does that dealership do now?

Well, I think it's important that all sales managers, everybody knows and understands

the rules around the Adverse Action Notice.

But let me give you one best tip.

There is no penalty for providing an Adverse Action Notice when it's not required.

So a best practice very well could be, when in doubt, send it out.

So that's our compliance Question for today.

Remember you can send your common sense compliance question to [email protected]

and you can find more information about EFG Companies at efgcompanies.com.

I'm Steve Roennau . Thanks for listening.

An EFG Production.