Adverse Action Model Language

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    A question we received from a member:
    When denying credit, is it acceptable if the specific reasons for adverse action don’t align with the model language of C-1. For instance, the AA Notice might say “Collection Accounts” or “Unsatisfactory Credit” or “Unacceptable Credit References” or “Excess Obligations to Income” or “Tax Liens”. I’ve been reading ECOA and commentary and find the reasons must be “specific” (such as those illustrated) but not that they must conform to the language of model C-1.

    I’m also seeing this from the preamble of Appendix C:
    3. The sample forms are illustrative and may not be appropriate for all creditors. They were designed to include some of the factors that creditors most commonly consider. If a creditor chooses to use the checklist of reasons provided in one of the sample forms in this Appendix and if reasons commonly used by the creditor are not provided on the form, the creditor should modify the checklist by substituting or adding other reasons. For example, if “inadequate down payment” or “no deposit relationship with us” are common reasons for taking adverse action on an application, the creditor ought to add or substitute such reasons for those presently contained on the sample forms.

    5. A creditor may design its own notification forms or use all or a portion of the forms contained in this Appendix. Proper use of Forms C–1 through C–4 will satisfy the requirement of §1002.9(a)(2)(i).

    So, to what degree can an institution take liberty with the language for adverse action reasons and not lose the safe harbor implied by the use of the C-1 model?


    I agree with you, the form needs to be substantially similar (i.e. everything needs to be pretty much the same). Where the Reg and Appendix C do recognize some change may be needed is in the reasons for adverse action. I think an institution can add or adjust reasons to fit their institution as long as they are specific enough for the customer to recognize what the reason was and, therefore, what they need to improve. With that said, even if there are some changes or additions, the list of reasons will in all likelihood be very similar to the list in the sample form. The only reason you listed that concerns me is the “unsatisfactory credit” – I think regulators want banks to be more specific so borrowers know why their credit was unsatisfactory.

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