Find Me Funders
Adverse action notice
Also called notice of adverse action, ECOA notice, declination notice.
The notice a creditor must give when it declines an application or grants credit on materially worse terms than requested, stating the specific principal reasons or how to obtain them.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
The requirement sits in the Equal Credit Opportunity Act and its implementing rule, Regulation B, at 12 CFR part 1002. It is not consumer-only. Business credit applicants are covered, and the notice is one of the few points where a declined business applicant has an actual entitlement to information.
How business applicants are treated
Regulation B tiers the obligation, and not only by revenue. Where the applicant is a business with gross revenues of $1 million or less in its preceding fiscal year, the creditor follows the ordinary rule in § 1002.9(a)(1) and (2) — notification within 30 days of a completed application — with relaxations: the statement of the action taken may be given orally or in writing, and the disclosure of the applicant's right to a statement of reasons may be given at the time of application instead of when adverse action is taken.
Where the applicant had gross revenues over $1 million, or where the credit is "an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit" whatever the revenue, § 1002.9(a)(3)(ii) requires only notice of the action taken within a reasonable time, orally or in writing, and a written statement of reasons only if the applicant asks in writing within 60 days. Factoring sits in that second tier by name, not by size.
Record retention differs too. Section 1002.12(b) requires 25 months for consumer credit and 12 months for business credit, cut to 60 days for applicants above the $1 million line unless the applicant asks in writing for the reasons or for the records to be kept.
One threshold question sits underneath all of it. Regulation B applies to "credit", defined at § 1002.2(j) as "the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor". Whether a product documented as a purchase of future receivables is credit for that purpose is the same characterisation question that runs through the usury analysis of these agreements. Read the current text of Regulation B at consumerfinance.gov rather than assuming the consumer timetable — or the consumer answer — applies to your file.
What the notice has to contain
The specific principal reasons for the decision, or a statement of the applicant's right to request them within a set period. "Credit score too low" without more is generally not a specific reason. Where a consumer report was used, the Fair Credit Reporting Act separately requires the reporting agency to be identified and the applicant told of the right to a free copy and to dispute inaccuracies.
What it is not
The small business lending data collection rule under Dodd-Frank §1071 is a different obligation entirely — data reporting to a regulator, not notice to an applicant. The two are frequently confused because they arrived in the same conversation about transparency in small business credit.
Where this one catches people
The valuable part of the notice is the reason, and the common experience is receiving nothing at all. Non-bank funders in this market are inconsistent about issuing notices, and a broker shopping your file to a dozen desks generates a dozen decisions, most of which are absorbed by the broker and never reach you.
That matters practically. "Insufficient deposits", "unacceptable industry", "too many existing positions" and "time in business" point to entirely different actions: one means come back in three months, one means stop applying to this class of funder, and one means never apply again in this entity. Without the reason you are guessing, and each guess costs another credit pull.
If you are declined and hear nothing, write to the funder — not the broker — and ask for the specific principal reasons for the decision and the name of any consumer reporting agency used. Ask in writing, keep the reply, and ask the broker for the list of funders your file was submitted to.
Where you will meet this term
Read next
Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
-
Regulation B’s relaxed business-credit tier is keyed to credit type as well as revenue: trade credit and credit incident to a factoring agreement fall in it regardless of the applicant’s revenue
definition"With regard to a business that had gross revenues in excess of $1 million in its preceding fiscal year or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, a creditor shall..."
-
For applicants in the relaxed tier the creditor need only notify of the action taken within a reasonable time, orally or in writing, and give written reasons only on a written request within 60 days
definition"Notify the applicant, within a reasonable time, orally or in writing, of the action taken" and "Provide a written statement of the reasons for adverse action" only if requested in writing within 60 days.
-
Oral notice of the action taken is available for smaller business applicants too, not only for larger ones
definitionFor a business with gross revenues of $1 million or less: "The statement of the action taken may be given orally or in writing, when adverse action is taken" and "Disclosure of an applicant's right to a statement of reasons may be given at the time of application".
-
A statement of reasons must be specific, and a bare reference to a credit score or internal policy is insufficient
definition"The statement of reasons for adverse action ... must be specific and indicate the principal reason(s) for the adverse action." Statements based on "the creditor's internal standards or policies" or failure "to achieve a qualifying score" are "insufficient".
-
Record retention differs between consumer and business credit, and is shortest for applicants above the $1 million revenue line
definitionRecords must be kept "For 25 months...after the date that a creditor notifies an applicant of action taken" for consumer credit and "12 months for business credit"; for applicants over $1 million in revenue, "for at least 60 days" unless the applicant requests in writing.
-
Regulation B applies to "credit" as it defines the term, which is the threshold question for a product documented as a purchase of receivables
definitionCredit is "the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor."
-
Where a consumer report was used, FCRA separately requires the user to identify the reporting agency and tell the consumer of the right to a free copy and to dispute
definitionThe user must supply "the name, address, and telephone number of the [consumer reporting agency]" and inform the consumer of the right to a free copy under section 1681j within 60 days and to dispute accuracy under section 1681i.
Adverse action notice — common questions
What does adverse action notice mean?
The notice a creditor must give when it declines an application or grants credit on materially worse terms than requested, stating the specific principal reasons or how to obtain them.
Where does adverse action notice catch people out?
The valuable part of the notice is the reason, and the common experience is receiving nothing at all. Non-bank funders in this market are inconsistent about issuing notices, and a broker shopping your file to a dozen desks generates a dozen decisions, most of which are absorbed by the broker and never reach you.
Is adverse action notice the same as an interest rate?
Adverse action notice is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does adverse action notice apply to?
Merchant Cash Advance, Working Capital, Term Loan, Business Line of Credit, SBA Loan, Equipment Financing.
Is there a worked example of adverse action notice?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside adverse action notice?
Approval, Business credit report, Credit box, Credit pull, FICO score.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.