The short answer

If a business takes adverse action against someone based on a consumer report, such as denying credit, the FTC says it must tell the consumer. The notice has set contents and belongs to the decision-maker. Whether it applies to business funding depends on the facts, so know who decides in your setup and ask your counsel before you act on a report.

Agencies, brokers and platforms that put funding in front of clients tend to meet this topic late, usually after someone asks, “Shouldn’t we have sent a letter?” It’s much easier to understand before the question comes up. This article explains the idea in plain terms. It isn’t legal advice, and the details of your situation matter.

What “adverse action” means

In the Federal Trade Commission’s guidance, adverse action is something a business does to a consumer based on information in a consumer report. The FTC’s words are direct: if you take adverse action against a consumer based on information in a consumer report, you must tell the consumer. The most common type of adverse action, it adds, is a denial of credit.

Notice the shape of that sentence: a decision was made, and a consumer report was part of it.

What the notice has to say

The FTC’s guide lists what an adverse action notice includes under the Fair Credit Reporting Act. In its words, the notice carries:

  • the name, address and phone number of the consumer reporting agency that supplied the report, with a toll-free number for nationwide agencies;
  • a statement that the agency didn’t make the adverse decision and can’t explain why it was made;
  • notice of the consumer’s right to a free copy of the report from that agency if they ask within 60 days;
  • notice of the consumer’s right to dispute the accuracy or completeness of anything the agency provided; and
  • the consumer’s credit score, if a score was used.

That’s why a stray “sorry, your credit wasn’t good enough” doesn’t do the job. The point of the notice is to tell the person which agency’s file was used, and what they can do about it.

Whose notice is it?

The one who made the decision. The FTC’s guidance puts the duty on the business that takes the action, and the notice itself tells the consumer that the reporting agency didn’t make the decision and can’t explain it.

For an agency, the practical question is whether you’re that business. Many aren’t. If your role is to show an owner an estimate and connect them with lenders, the lender decides whether to extend credit, and the notice may be the lender’s. If your role includes deciding who gets served, who’s declined or who moves forward, based on what a report says, you may be closer to the decision than you think. Where that line sits depends on your facts, which is why it’s a question for counsel.

Consumer credit, business funding

One more caveat that’s easy to skip. The FTC guide discussed here is written about consumer credit, and its risk-based pricing section refers to credit for personal, family or household purposes. Business funding can follow different rules. But it isn’t a clean split: business funding often involves an owner’s personal credit, and an owner who guarantees a loan is personally on the hook, which can bring the consumer-report rules into view. What a personal guarantee means explains why that overlap is common.

So the safe habit is to assume the question is open, not closed, and to ask.

Habits that keep you out of trouble

  1. Write down who decides. For each product you offer, name the party that makes the credit decision. It should be obvious from your documents, not just your head.
  2. Keep your language about a report neutral. A range is an estimate. Avoid telling someone they were “turned down because of their credit” unless you’re the decision-maker and counsel has told you what to send. What to say about a funding range has wording that holds up.
  3. Don’t draft your own notice. The contents are set out in the law. Have your counsel give you a template and tell you when it applies.
  4. Keep the record. The consent, the report you used, the decision and the date. Consent on file before the call covers the first part.
  5. Point people to their rights. If someone questions what’s in their report, the answer is the agency that supplied it, and the free report they’re entitled to. Our guide to reading your credit report is a good place to send them.

FundingRange shows a range and isn’t a lender, so it doesn’t make credit decisions. Any lender or partner that does needs to look after its own notices.

This is information, not legal advice. If you act on what a consumer report says, ask your counsel what applies to you.