Q When two individuals apply jointly for a checking account, and the application is declined based on a QualiFile® score, questions often arise about who should receive an adverse action notice under the Fair Credit Reporting Act (FCRA). The issue becomes particularly nuanced when one applicant has an excellent score, and the other does not.
If the bank denies the account based on the weaker applicant’s QualiFile score, does the FCRA require adverse action notices for both applicants—or only for the individual whose score influenced the decision?
A Both the applicant and any co-applicant must receive an FCRA adverse action notice. (Note that if this were a credit application, Regulation B (Equal Credit Opportunity Act) adverse action requirements would apply as well. In contrast, under Regulation B, when an application involves more than one applicant, notice need only be provided to one applicant—typically the primary individual identified on the credit application.)
Section 615(a) of the FCRA states that any party who “takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report” must provide an adverse action notice to the consumer. This notice may be provided to the consumer orally, in writing, or electronically.
The FTC’s publication, 40 Years of Experience with the FCRA, provides additional clarity on adverse action notice requirements when there are multiple applicants, stating:
When there are two applicants, a creditor must provide an adverse action notice to both applicants if the application is denied, even in part, based on information in a co-applicant’s consumer report.
Thus, the FCRA adverse action notice obligation applies not just to the applicant whose QualiFile score was used in making the adverse decision, but to any applicant who was adversely impacted by the bank’s decision to deny the account. This is true even if the application was denied only in part based on information from an applicant’s score. This is also true when a co-applicant(s) experiences the adverse action, even though their score was not a factor in the bank’s decision to deny the account.
The statute and interpretations make clear that notice must be provided to any applicant adversely affected by the account denial, although complications arise regarding the specific notification provided to the applicant(s) whose QualiFile score was not a factor in the decision (i.e., the applicant with an excellent score).
This issue arose in 2011, when the Federal Reserve published a Final Rule addressing Regulation B and FCRA adverse action notices. At the time, commenters recommended adding language to the model adverse action forms to indicate that for co-applicants, the adverse action decision may be based on either or both of the applicants’ credit information. However, the Board declined to do so and stated that “providing additional language on the model forms would complicate the disclosures without providing a substantial benefit to consumers. An applicant with strong credit who receives an adverse action notice will likely understand that the adverse action decision was based on the co-applicant’s credit information or will contact the creditor to inquire.”
Note that the FCRA does not prohibit the bank from providing a more tailored written or verbal notice explaining the denial, provided that the bank does not disclose the applicant’s or co-applicant’s QualiFile score.
For more information, contact ABA’s Leslie Callaway.
Please note that this section is not a substitute for professional legal advice.
