Adverse action notice

The notice a lender must give under Regulation B when it refuses credit in substantially the amount or on the terms requested, with the reasons or the right to ask for them.

Adverse action means a refusal to grant credit in substantially the amount or on substantially the terms requested, unless the lender makes a counteroffer and the applicant accepts it. It also covers ending an account or an unfavorable change in its terms, and refusing a requested increase. It does not include a refusal because the lender does not offer the type of credit requested.

The notice rules differ for business credit. For a business with gross revenues of $1 million or less in its preceding fiscal year, the lender must give notice within 30 days of a completed request; the statement of the action may be oral or written, and the lender may disclose the right to a statement of reasons at the time of the request. For a business with revenues over $1 million, the lender must notify within a reasonable time, orally or in writing, and must give written reasons only if the applicant asks in writing within 60 days.

So ask. The reasons must be specific; a statement that the request did not meet internal standards is not enough. Specific reasons, such as cash flow coverage or collateral value, tell you what to fix and which lender to try next.

Go further

• When a bank says no: Steps after a decline.
• Loan comps: Lenders that made similar loans nearby.
• What to do after a bank says no to a business loan: One bank's no is one lender's answer, and the reasons are yours to ask for. They usually point to a constraint you can name.

Related terms

• Regulation B: The federal rule, 12 CFR part 1002, that carries out the Equal Credit Opportunity Act: it bars credit discrimination on prohibited bases and sets notice rules, for business credit as well as consumer credit.
• Section 1071 (small business lending data rule): The part of the Dodd-Frank Act, carried out in Regulation B subpart B, that will require larger lenders to collect and report data on credit requests from small businesses.
• Credit elsewhere test (SBA): SBA's rule that a loan is eligible only if the business cannot get some or all of the money on reasonable terms elsewhere. The lender must certify it and explain why in its credit memo.
• HMDA loan register (LAR): The loan-by-loan file a mortgage lender keeps and reports each year under HMDA, with one row for every covered loan and loan request and what happened to it.
• Credit committee: A credit committee is the group inside a lender that decides on loans above the amount a single loan officer is allowed to decide alone.
• Term sheet: A term sheet is a short written outline of the loan a lender is prepared to consider: amount, rate, term, fees and main conditions. It is usually not binding.

Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.