Adverse Action Notices Under the FCRA: Two Notices, and What Each One Carries

Two Notices, Sitting in Different Sections

The phrase "adverse action notice" covers two separate obligations in the Fair Credit Reporting Act, and conflating them obscures which one applies to whom. 15 U.S.C. § 1681b(b)(3) sits inside the subsection on employment purposes and runs before the decision. 15 U.S.C. § 1681m is a free-standing section titled "Requirements on users of consumer reports" and runs when the action is taken, whoever takes it.

Only the first is limited to employment. The second reaches any person who takes any adverse action with respect to any consumer based in whole or in part on information contained in a consumer report. An employer who declines an applicant on the strength of a background check owes both; an insurer or a lender owes the second.

What Adverse Action Means

The scope of the second notice depends on a definition that is broader than most discussions of background checks suggest. Section 1681a(k) gives the term the same meaning it carries in the Equal Credit Opportunity Act at 15 U.S.C. § 1691(d)(6), and then adds four categories of its own:

• A denial or cancellation of, an increase in any charge for, or an adverse or unfavorable change in the terms of coverage or amount of any insurance, existing or applied for, in connection with underwriting
• A denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee
• A denial or cancellation of, an increase in any charge for, or any other adverse or unfavorable change in the terms of any license or benefit described in section 1681b(a)(3)(D)
• An action or determination made in connection with an application or transaction initiated by the consumer, or in connection with an account review, that is adverse to the interests of the consumer

The second category is drafted more widely than a hiring refusal. It covers any decision for employment purposes that adversely affects a current employee, which on its face includes decisions about promotion, reassignment and retention rather than only decisions about entry.

The Notice Before the Decision

Section 1681b(b)(3)(A) states that in using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take that action shall provide to the consumer a copy of the report and a description in writing of the consumer's rights under the subchapter, as prescribed by the Bureau under section 1681g(c)(3). Two documents, in that order, before the decision is executed.

The certification chain behind this is what makes it enforceable upstream. Under § 1681b(b)(1)(A), a consumer reporting agency may furnish a report for employment purposes only if the person obtaining it certifies both that it has complied with the disclosure paragraph and that it will comply with paragraph (3) if paragraph (3) becomes applicable, and only if the agency provides or has previously provided the summary of rights. The agency's duty to supply that summary was confirmed by the Federal Trade Commission's 1998 advisory opinion to Coffey, which located it in § 1681b(b)(1)(B).

What Section 1681m Requires in the Notice Itself

Section 1681m(a) enumerates what the user of the report has to convey once the action is taken. The notice of the adverse action itself may be oral, written or electronic. Alongside it the section requires:

• Written or electronic disclosure of the numerical credit score used, where one was used, together with the information set out in subparagraphs (B) through (E) of section 1681g(f)(1)
• The name, address and telephone number of the consumer reporting agency that furnished the report, including a toll-free number if the agency maintains files nationwide
• A statement that the consumer reporting agency did not make the decision and is unable to provide the specific reasons why the adverse action was taken
• Notice of the right to obtain a free copy of the report from that agency under section 1681j, which the statute says shall include an indication of the 60-day period for doing so, and of the right to dispute the accuracy or completeness of any information under section 1681i

Two neighbouring provisions in the same section are frequently mistaken for it. Section 1681m(b) governs adverse action on credit taken because of information obtained from someone other than a consumer reporting agency, and it operates on request rather than automatically: the user discloses the nature of the information on the consumer's written request received within sixty days, and must clearly and accurately disclose the right to make that request when the action is communicated. Section 1681m(h) is the risk-based pricing notice, which is owed not when credit is denied but when it is granted on material terms materially less favorable than those available to a substantial proportion of consumers, and it does not apply where a section 1681m(a) notice has been or will be given for the same transaction.

The Summary of Rights and Appendix K

Both the pre-adverse action step and the agency disclosure route through the same prescribed document. Section 1681g(c) directs the preparation of a model summary of rights and specifies its contents: the right to obtain a copy of the report from each agency, the frequency and circumstances of a free report under section 1681j, the right to dispute file information under section 1681i, the right to obtain a credit score and how to get one, and the methods for contacting agencies including the nationwide specialty agencies.

The form itself lives in Appendix K to Part 1022 of Regulation V. As amended at 88 FR 58066 on August 25, 2023, the appendix no longer reproduces the model text inline. It states instead that the prescribed form is "a disclosure that is substantially similar to the Bureau's model summary with all information clearly and prominently displayed," allows the list of federal regulators to be provided separately if that is done in a clear and conspicuous way, and adds two conditions worth noting: a summary "should accurately reflect changes to those items that may change over time (e.g., dollar amounts, or telephone numbers and addresses of Federal agencies) to remain in compliance," and a translation complies if it is accurate and is provided in a language used by the recipient consumer.

The Transportation Carve-Out

Section 1681b(b)(3)(B) replaces the pre-adverse action step with a different sequence for a narrow class of applicants, and § 1681b(b)(3)(C) sets the boundary: the substitute applies only where the consumer is applying for a position over which the Secretary of Transportation has power to establish qualifications and maximum hours of service under 49 U.S.C. § 31502, or a position subject to safety regulation by a state transportation agency, and only where the sole interaction in connection with the application has been by mail, telephone, computer or similar means.

Where it does apply, the notice moves after the decision. Within three business days of taking the action the person provides an oral, written or electronic notification that adverse action has been taken based in whole or in part on a consumer report; the agency's name, address and telephone number; that the agency did not make the decision and cannot provide the specific reasons; and that the consumer may request a free copy of the report on proper identification and may dispute its accuracy or completeness with the agency.

How Long the Statute Says to Wait

It does not say. Section 1681b(b)(3)(A) requires the copy and the summary "before taking any adverse action" and stops there. The Federal Trade Commission staff said as much twice in 1998. The advisory opinion to Lewis answered the question directly: "The statute does not specify how long an employer must wait, after providing the required disclosures, before taking the adverse action," adding that the appropriate interval "will vary depending upon the circumstances, such as the nature of the job involved and the way that the employer does business." The Coffey opinion said the law "is silent as to how long the employer must wait." Both letters state on their face that they are informal staff views and not binding on the Commission.

The Ninth Circuit has not filled the gap either. In Walker v. Fred Meyer, Inc., 953 F.3d 1082 (9th Cir. 2020), the panel noted in a footnote that the parties had not raised, and the court therefore did not decide, whether an employer must wait a reasonable period after sending a pre-adverse action notice before making a final decision, citing the district court discussion in Magallon v. Robert Half International.

Who the Dispute Right Runs Against

Walker did decide a related question, and the answer narrows what the pre-adverse action notice has to offer. The plaintiff argued that the right to dispute embedded in the summary of rights implies an opportunity to discuss the report with the employer itself rather than with the reporting agency, since the agency has no power to reconsider the hiring decision. The panel traced the chain instead: § 1681b(b)(3)(A) points to the summary prescribed under § 1681g(c)(3), § 1681g(c)(1)(B)(iii) describes the right to dispute file information under section 1681i, and section 1681i sets out procedures for disputing accuracy or completeness with the consumer reporting agency.

Section 1681i, the panel observed, "does not provide any rights or procedures for discussing a report directly with an employer." It held that the text, the legislative history and circuit precedent all aim at correcting errors in reports, and that the pre-adverse action notice Walker received did not violate the FCRA by omitting an invitation to take the matter up with Fred Meyer. The dispute right the notice describes is a right against the agency that compiled the file.

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