Adverse Action Notices: Timing, Required Content & How to Do It Right
Scope & why this guide matters
Adverse action notices are legally required messages you must send when you deny an application or offer less favorable terms based in whole or part on a consumer report (credit, tenant-screening, or background report). They also apply in credit decisions under separate rules. Getting these notices wrong is one of the most common triggers for class actions in employment, housing, lending, and insurance. This guide shows exactly when notices are required, what they must contain, timing (including pre-adverse steps), and templates you can adapt—plus “graphics” tables, risk matrices, and an FAQ.
Quick Guide (English)
- Employment: If a background/credit report may lead to denial or negative action, send a pre-adverse action notice with (1) the report and (2) rights summary. Wait a reasonable period (or the local-law minimum). Then send the final adverse action notice if you still intend to deny.
- Housing: If you deny or condition terms because of a tenant/credit report, send an adverse action notice (some cities require a pre-adverse step for criminal-history items).
- Credit/Loans: A denied or changed-terms credit decision triggers adverse action notices under credit laws (reasons for denial and right to a free credit report). If a consumer report was used, include the reporting-agency details.
- Insurance: If a consumer report affects rates or coverage, send the required adverse action notice with reasons and file-access rights.
- Keep proof: Log dates, copies of reports/notices, and delivery method. Retain per policy (often 2–3 years).
Key definitions
- Consumer report: information from a consumer reporting agency (CRA) about credit worthiness, character, reputation, or similar, used for eligibility decisions (employment, housing, credit, insurance, etc.).
- Adverse action: denial or less favorable terms based on a report—e.g., rejecting a tenant, requiring a higher deposit or co-signer, withdrawing a job offer, non-promotion, denying a loan, raising premium, or reducing credit line.
- Pre-adverse action: an advance notice (mainly in employment and some local housing regimes) that gives the applicant a copy of the report and time to dispute inaccuracies before you finalize the decision.
When a notice is required (by context)
| Context | Trigger | Required steps | Timing |
|---|---|---|---|
| Employment | Background/credit report will cause a denial or negative action | Pre-adverse (report + rights) → wait → Final adverse | Wait a reasonable period (commonly 5–7 business days) or any local-law minimum before finalizing |
| Housing | Tenant/credit report informs denial/conditions | Adverse action notice (some cities also require a pre-adverse step for criminal history) | Send promptly after decision; observe any mandated response windows |
| Credit/Lending | Denied credit or materially worse terms | Credit adverse-action notice with principal reasons + right to free credit report; include CRA identity if a bureau report influenced the decision | Within prescribed periods after decision or upon request |
| Insurance | Rates/coverage adversely affected by a report | Adverse action notice stating reasons and file-access rights | Promptly after rating decision |
What a compliant notice must include
- Statement of adverse action (denial or changed terms) and date.
- CRA identification: name, address, phone/website of the reporting agency that supplied the report.
- Disclaimer: the CRA did not make the decision and cannot explain specific reasons.
- Rights: free file disclosure within the allowed window and dispute rights to correct inaccuracies.
- Credit-score disclosure when a score was used (score, range, date, source) if the context/state requires it.
Pre-adverse action packet (employment & some housing)
- Notice of intent to take adverse action based on the report.
- A copy of the report you relied upon.
- The official Summary of Rights under consumer-reporting law.
- How to dispute inaccuracies with the CRA and how to contact you with additional information.
- A waiting period before final action (set a clear date). Many employers use 5–7 business days; follow stricter local rules where they exist.
“Graphics” info — adverse-action decision tree
| Question | If YES | If NO |
|---|---|---|
| Did a consumer report inform your decision? | Proceed to notice workflow | Use ordinary denial communication; keep decision log anyway |
| Is the context employment (or a locality requiring pre-adverse)? | Send pre-adverse → wait → final adverse | Send adverse action notice after decision |
| Was a credit score used? | Include score disclosures as required | No score disclosure necessary |
Model language you can adapt
We are considering an adverse employment decision based in whole or part on information in a consumer report. Enclosed are (1) a copy of the report and (2) your Summary of Rights. If you wish to dispute the report or provide additional information, please contact us and the reporting agency listed below by [DATE]. No final decision will be made until after that date.
After reviewing your information, we are unable to approve your application (or we can approve only with different terms). This decision was based in whole or part on information from: [CRA NAME, ADDRESS, PHONE/WEB]. The reporting agency did not make this decision and cannot explain our reasons. You have the right to obtain a free copy of your report from the agency within [window] and to dispute the accuracy or completeness of any item.
Reasons for denial: how specific?
In employment and housing, a narrative “reason” is not always mandated beyond the CRA identity and rights—but transparency reduces disputes. In credit decisions, you must provide specific principal reasons for denial or unfavorable terms (e.g., “insufficient income,” “delinquent past or present credit obligations,” “limited credit history”). Use reason codes from your underwriting policy, not generic phrases like “failed background.”
Timing, delivery & recordkeeping
- Timing: send pre-adverse promptly after you identify a report-based concern; allow time for a response; then send final adverse immediately upon decision. Housing/insurance/credit notices should be sent as soon as practicable after the decision or within the statutory window.
- Delivery: mail, hand-delivery, or electronic delivery with consent. Electronic delivery requires access to the report and rights documents.
- Recordkeeping: keep a decision log (dates, report used, notices sent, outcomes) and copies of notices/reports for your retention period (often 2–3 years, longer if claims are foreseeable).
“Graphics” info — risk matrix for common mistakes
| Mistake | Exposure | Example | Fix |
|---|---|---|---|
| Skipping pre-adverse step | Statutory damages + fees (employment) | Immediate offer withdrawal after report | Automate pre-adverse packet + waiting period |
| Vague reasons in credit denials | Credit-law violations | “Application does not meet standards” | List principal, specific reasons from underwriting policy |
| Using outdated or wrong CRA name | Invalidates rights; complaint risk | Old vendor info in template | Centralize CRA metadata; update quarterly |
| No copy of report in pre-adverse packet | Noncompliance | Only sending a “summary of findings” | Attach the full report each time |
| Criminal-history blanket bans | Fair-chance/disparate-impact liability | “No felonies ever” policy | Use individualized assessment; apply look-back limits |
Special topics
Conditional approvals & deposits
If a consumer report leads you to require a higher deposit, a co-signer, or other less favorable terms, that is still an adverse action. Send the notice even if the applicant accepts the conditions.
Language access & accessibility
Provide notices in a language the applicant can understand where required by local rules or your own marketing practices. Supply accessible PDFs or HTML for screen readers. These practices reduce disputes and improve compliance.
What if the consumer disputes the report?
Pause the decision during the pre-adverse window. If the CRA corrects the report, reconsider. If you still deny for reasons unrelated to the report, document the rationale in your log and update the notice language accordingly.
Adverse-action checklist you can paste into your SOP
- ☑ Determine whether a consumer report influenced the decision.
- ☑ Identify the correct context (employment, housing, credit, insurance) and required notice type(s).
- ☑ Generate pre-adverse packet if required (report + rights + dispute path + waiting period).
- ☑ After the wait (or in non-employment contexts), send the final adverse-action notice with CRA identity, disclaimer, and file-access rights; add reasons where required (credit).
- ☑ Log dates, delivery method, and staff initials; store copies securely.
- ☑ Update templates when vendors, laws, or jurisdictions change.
FAQ (English)
1) Do I need a pre-adverse step for tenants?
Not everywhere. Some cities require a pre-adverse process for criminal-history findings. Otherwise, housing generally requires an adverse action notice after the decision. Always check local overlays.
2) How long should the pre-adverse waiting period be?
Use the longest applicable period. Many employers use 5–7 business days. If your locality mandates a specific window, follow it.
3) We denied for multiple reasons—what do we list?
In credit, list the principal reasons (typically two to five). In employment/housing, clarity helps but is often not mandated beyond CRA identity/rights; avoid revealing sensitive third-party information about references.
4) If a consumer withdraws the application, do I still send a notice?
If you took no adverse decision, a notice is usually not required. If you made a decision based on a report (e.g., you would have denied), best practice is to send the notice or document the withdrawal carefully.
5) Is email delivery OK?
Yes, if the consumer consented to electronic delivery and you attach the full report for pre-adverse packets. Maintain a verifiable delivery record.
6) Do I need to include the credit score in every notice?
Include score details only when a credit score was used in the decision and the context/state requires disclosure.
7) We used an internal database, not a CRA. Are notices still required?
Consumer-reporting rules focus on data obtained from a consumer reporting agency. Internal data may not trigger those rules, but credit-denial laws and local ordinances can still require reasons and disclosures. When in doubt, provide a clear reason letter.
8) Can we charge for a copy of the report?
No. The consumer is entitled to a free copy from the CRA within the specified window and can dispute inaccuracies at no charge.
9) What if we partially approved—same rent but stricter terms?
If stricter terms were imposed because of a report, that is an adverse action. Send the notice.
10) How do we handle sealed/expunged records?
Do not rely on them. If they appear in a report, treat that as a potential accuracy issue; the consumer’s dispute through the CRA should result in removal.
Technical/legal basis (plain-English)
- Consumer-reporting framework: requires pre-adverse and adverse-action notices when decisions are based on consumer reports; mandates CRA identity/disclaimer, file-access, and dispute rights; imposes accuracy and reasonable-procedures duties on CRAs.
- Credit-decision rules: when credit is denied or offered on worse terms, the creditor must give an adverse-action notice stating principal reasons and providing free credit-report access instructions; when a bureau report influenced the decision, include bureau identity.
- Local overlays: “fair-chance” (ban-the-box) and fair-chance housing regulations add timing and content requirements for criminal-history information; some require a pre-adverse process and individualized assessment.
- Data privacy/security: state privacy and disposal rules govern retention and secure destruction of reports and notices; electronic delivery must ensure access and integrity.
Conclusion
Adverse-action compliance is straightforward when operationalized: identify the trigger, send the right notice at the right time, include the required elements, and maintain tight records. Automate your templates, calendar the waiting period where applicable, and train staff to document reasons consistently. Doing so respects applicants’ rights, improves accuracy, and dramatically reduces legal risk.