Speaking of Adverse Action Notices….

Sept. 18, 2022

By Michael G. Charapp
Charapp & Weiss LLP


Adverse action notices are not just for consumers denied credit. The Fair Credit Reporting Act (FCRA) also requires consent to run credit reports on job applicants and employees, with notification to applicants and employees if these reports lead to an adverse employment decision.

To understand that, let’s review how the process should work to run a credit report on a job applicant or an employee.

  • Consent for running a credit report on a job applicant or employee differs from the requirements on a consumers’ application for credit. The consent to run employment-related credit reports must be in writing, must be signed by the applicant or employee, and must be in a document which contains no other information. That means NO, a dealer may not rely on an authorization in a credit application.
  • If you obtain a report and it contains information that is a factor in your decision to not hire or promote an individual, you have obligations. Before you take the adverse action, you must give the individual a pre-adverse action disclosure that includes a copy of the individual’s credit report and a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” A copy of that form can be obtained here.
  • After you have taken the adverse action (for example, rejecting the applicant), you must give an adverse action notice that gives this information: the name, address and telephone number of the credit reporting agency used; a statement that the reporting agency did not decide and it cannot explain the action; notice of the individual’s right to dispute the accuracy and completeness of any information the agency furnished; and his or her right to a free consumer report from the agency upon request within 60 days.

Adverse action notices are not just for your customers.  Under appropriate circumstances, they must be issued to job applicants and employees.