---
title: CFPB Issues Adverse Action Circular
description: The CFPB recently released Circular 2022-03 to reiterate that Regulation B requires creditors to disclose specific reasons for taking adverse action. Denials
---

[Banker's Compliance Consulting Blog ](https://blog.bankerscompliance.com/en)

# [CFPB Issues Adverse Action Circular](https://blog.bankerscompliance.com/en/cfpb-issues-adverse-action-circular)

 Written by [Amy Kudlacek](https://blog.bankerscompliance.com/en/author/amy-kudlacek) | Jun 10, 2022 1:28:43 PM

The CFPB recently released [Circular 2022-03](https://www.consumerfinance.gov/compliance/circulars/circular-2022-03-adverse-action-notification-requirements-in-connection-with-credit-decisions-based-on-complex-algorithms/) to reiterate that Regulation B requires creditors to disclose specific reasons for taking adverse action. This includes instances where a decision is based on “complex algorithms.”

 

When creditors rely on internal systems that use complex formulas, artificial intelligence, or even third-party automated underwriting systems, it can be difficult to truly know what the specific reasons are that lead to taking the adverse action. Regardless, Regulation B requires that reasons for adverse action … *be specific and indicate the principal reason(s) for…*the action taken. *Statements that the adverse action was based on the creditor’s internal standards or policies or that the applicant…failed to achieve a qualifying score…are insufficient.*

 

#### If creditors are unable to decipher the specific reasons due to the complexity of the system, the system should not be used.

 

Appendix C of Regulation B includes sample adverse action notices, which provide some potential reasons a creditor might take adverse action. The Circular, however, cautions creditors from selecting a reason on a form just because it’s the “closest” option. …*If the reasons listed…are not the factors actually used, a creditor will not satisfy the notice requirement by simply checking the closest identifiable factor listed. *The Commentary also states that, if you use a credit scoring system, …*the reasons disclosed must relate only to those factors actually scored in the system.*

 

The Circular explains that the purpose of providing specific reasons is really two-fold. Doing so: 1) helps prevent discrimination…*If creditors know they must explain their decisions…they [will] effectively be discouraged from discriminatory practices*; and 2) educates applicants by alerting them to potential weaknesses and/or of potential errors in their credit history.

 

If you want to learn more about [Adverse Action Notices](https://store.bankerscompliance.com/#?keyword=adverse&type=), check out the webinar we held. It’s available now OnDemand. Get up to speed on the Regulation B and Fair Credit Reporting Act notification requirements with respect to:

 

- Denied Applications
- Notices of Incompleteness
- Counteroffers / Counteroffer Denials
- Withdrawals
- Notification Timing Requirements
- Fair Lending Intersections
- Multiple Applicants, Record Retention & Much More! 

 

Published  
2022/06/10

[View full post](https://blog.bankerscompliance.com/en/cfpb-issues-adverse-action-circular)

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