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dealership operations / compliance When You Must Issue an Adverse Action Notice David R. Missimer is vice president and general counsel for Automotive Compliance Consultants, Inc., the industry's only dealership-centric compliance consulting, audit and training company. dmissimer@compliantnow.com A question often asked is whether a consumer may sue an auto deal- ership for its failure to provide an adverse action notice as required by the Fair Credit Reporting Act (FCRA). The answer and the question can be confusing, so I hope to clarify the issue here and clearly spell out the conditions under which auto dealers must provide an adverse action notice. Concern arose in 2006 when a Virginia district court ignored overwhelming case evidence to the contrary and found that the ban on private causes of action in Section 1681 of the FCRA only applied to a limited subsection. As a result, consumers could sue for failure to receive an adverse action notice. The overwhelming—and I do mean overwhelming—court decisions on the issue have held that a private individual cannot sue a creditor for failing to provide an adverse action notice under the FCRA. An exception only occurs if a user of a credit report is a named defendant in one of two particular courtrooms, one in Virginia and one in northern California. So, the answer to the question, "Can my dealership be sued by a private individual for failing to provide an adverse action notice under the FCRA?" is no. This question and answer, however, are misguided. A dealership may still be held liable by the Federal Trade Commission (FTC) for failing to comply with the FCRA requirement to provide an adverse action notice. Despite exemption under the FCRA to private lawsuits, a dealer can be sued privately for failing to provide an adverse action notice under a different act. This other act, the Equal Credit Opportunity Act (ECOA), requires a creditor who takes adverse action on a con- sumer's credit application to provide a "statement of reasons" for the action. Adverse action notice is required when: • Credit is denied; • Credit is not even submitted for approval; • Credit is not granted upon the terms requested; or • The decision is based entirely or in part on 40 information contained in a consumer report. Therefore, according to the ECOA, any denial of credit, or a decision on behalf of the dealership not to even submit a credit application, will re- quire an adverse action notice be forwarded. What Dealers Must Know Unlike the FCRA, the ECOA does provide consumers the right to bring a private cause of action when a creditor vio- lates the terms of the act by failing to provide an adverse action notice. Although the purpose of the ECOA is to prevent discrimina- tion against those applying for credit, it also contains notice requirements providing that an applicant for credit against whom an adverse action is taken shall be entitled to a statement of the reasons for such an action from the creditor. The law provides that a consumer may bring a civil action against any creditor who fails to comply with any requirement imposed under the ECOA, including failure to provide an adverse action notice. A claim against a creditor for failing to provide an adverse action notice may be brought even if the consumer does not allege any discrimination. In other words, the adverse action notice required under the ECOA is required in every credit trans- action covered by the ECOA and is not contingent upon any