Adverse action

Adverse action refers to a type of notice given by a lender when a borrower's credit application has been denied. An adverse action notice is intended to inform borrowers of the reasons why their loan application is rejected. It contains information regarding the causes of rejection and the sources used to evaluate the borrower's ability to repay the borrowed amount and instructions on how the borrower can access the same information, and the processes to address disputes. 

For example, a borrower has applied for a loan, and within the next few weeks, they receive an adverse action notice in the mail stating that their loan application is denied. In the adverse action notice, the lender has stated that the rejection was based on a number of negative events shown in the credit report, such as missed credit card payment that happened several weeks ago or someone has used the borrower's personal information to lease an expensive vehicle in a state where the borrower does not even reside.

The borrower contacted the financial institution to initiate the dispute resolution process and inform them about the identity theft due to the unauthorized vehicle lease. The borrower also contacted the credit reporting agency to request a complimentary copy of the credit report in order to identify whether any other suspicious transactions may have occurred.