Consumer Financial Protection Circular 2023-03: Adverse Action Notification Requirements and Proper Use of Sample Forms

Publisher lists this guidance as withdrawn/rescinded: Consumer Financial Protection Circular 2023-03: Adverse Action Notification Requirements and Proper Use of Sample Forms, 89 FR 27361 (Apr. 17, 2024); withdrawn on May 12, 2025 .

27361 Federal Register/ Vol. 89, No. 75 / Wednesday, April 17, 2024 / Rules and Regulations
1
See 15 U.S.C. 1691(a).
2
See 15 U.S.C. 1691(d)(2); 12 CFR 1002.9(a)(2)(i);
see also 12 CFR 1002.9(a)(2)(ii) (allowing creditors
the option of providing notice or following certain
requirements to inform consumers of how to obtain
such notice).
3
15 U.S.C. 1691(d)(3); 12 CFR 1002.9(b)(2).
4
15 U.S.C. 1691(d)(3); 12 CFR 1002.9(b)(2).
5
See Fischl v. Gen. Motors Acceptance Corp., 708
F.2d 143, 146 (5th Cir. 1983); S. Rep. 94–589, 94th
Cong., 2d Sess., at 4, reprinted in 1976 U.S.S.C.A.N.
403, 406.
6
12 CFR part 1002, (app. C), comment 3.
7
Like ECOA, FCRA also includes adverse action
notification requirements. See 15 U.S.C.
1681m(a)(2). For example, when a person takes
adverse action based in whole or in part on any
information contained in a consumer report and has
used a credit score, the person must disclose the
credit score and, among other items, the ‘‘key
factors that adversely affected the score of the
consumer,’’ the total of which shall generally not
exceed four (except if a key factor was the number
of inquiries made with respect to a consumer
report). 15 U.S.C. 1681g(f)(1)(C), 1681m(a)(2).
Although this circular is focused on ECOA’s
adverse action notification requirements, similar
principles apply under FCRA when a person must
disclose the ‘‘key factors that adversely affected the
credit score of the consumer.’’ 15 U.S.C.
1681g(f)(1)(C); see also 1681g(f)(2)(B) (defining ‘‘key
factors’’ to mean ‘‘all relevant elements or reasons
adversely affecting the credit score of the particular
individual, listed in the order of their importance
based on their effect on the credit score’’). Despite
similar underlying principles, the statutory
obligations under FCRA and ECOA are distinct. See
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(2)–9 (‘‘Disclosing the key factors that adversely
affected the consumer’s credit score does not satisfy
the ECOA requirement to disclose specific reasons
for denying or taking other adverse action on an
application or extension of credit.’’). Moreover,
while ECOA’s requirements only apply to creditors,
FCRA’s adverse action notice requirements apply to
‘‘any person’’ that takes adverse action based in
Continued
Consumer Financial Protection
Circulars are also intended to provide
transparency to partner agencies
regarding the CFPB’s intended approach
when cooperating in enforcement
actions. See, e.g., 12 U.S.C. 5552(b)
(consultation with CFPB by State
attorneys general and regulators); 12
U.S.C. 5562(a) (joint investigatory work
between CFPB and other agencies).
Consumer Financial Protection
Circulars are general statements of
policy under the Administrative
Procedure Act. 5 U.S.C. 553(b). They
provide background information about
applicable law, articulate considerations
relevant to the Bureau’s exercise of its
authorities, and, in the interest of
maintaining consistency, advise other
parties with authority to enforce Federal
consumer financial law. They do not
restrict the Bureau’s exercise of its
authorities, impose any legal
requirements on external parties, or
create or confer any rights on external
parties that could be enforceable in any
administrative or civil proceeding. The
CFPB Director is instructing CFPB staff
as described herein, and the CFPB will
then make final decisions on individual
matters based on an assessment of the
factual record, applicable law, and
factors relevant to prosecutorial
discretion.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2024–08007 Filed 4–16–24; 8:45 am]
BILLING CODE 4810–AM–P
CONSUMER FINANCIAL PROTECTION
BUREAU
12 CFR Chapter X
Consumer Financial Protection
Circular 2023–03: Adverse Action
Notification Requirements and Proper
Use of Sample Forms
AGENCY: Consumer Financial Protection
Bureau.
ACTION: Consumer financial protection
circular.
SUMMARY: The Consumer Financial
Protection Bureau (CFPB) has issued
Consumer Financial Protection Circular
2023–03, titled, ‘‘Adverse action
notification requirements and the
proper use of the CFPB’s sample forms
provided in Regulation B.’’ In this
circular, the CFPB responds to the
question, ‘‘When using artificial
intelligence or complex credit models,
may creditors rely on the checklist of
reasons provided in CFPB sample forms
for adverse action notices even when
those sample reasons do not accurately
or specifically identify the reasons for
the adverse action?’’
DATES: The CFPB released this circular
on its website on September 19, 2023.
ADDRESSES: Enforcers, and the broader
public, can provide feedback and
comments to Circulars@cfpb.gov.
FOR FURTHER INFORMATION CONTACT:
George Karithanom, Regulatory
Implementation & Guidance Program
Analyst, Office of Regulations, at 202–
435–7700 or at: https://reginquiries.
consumerfinance.gov/.
SUPPLEMENTARY INFORMATION:
Question Presented
When using artificial intelligence or
complex credit models, may creditors
rely on the checklist of reasons provided
in CFPB sample forms for adverse action
notices even when those sample reasons
do not accurately or specifically identify
the reasons for the adverse action?
Response
No, creditors may not rely on the
checklist of reasons provided in the
sample forms (currently codified in
Regulation B) to satisfy their obligations
under ECOA if those reasons do not
specifically and accurately indicate the
principal reason(s) for the adverse
action. Nor, as a general matter, may
creditors rely on overly broad or vague
reasons to the extent that they obscure
the specific and accurate reasons relied
upon.
Analysis
The Equal Credit Opportunity Act
(ECOA), implemented by Regulation B,
makes it unlawful for any creditor to
discriminate against any applicant with
respect to any aspect of a credit
transaction on the basis of race, color,
religion, national origin, sex (including
sexual orientation and gender identity),
marital status, age (provided the
applicant has the capacity to contract),
because all or part of the applicant’s
income derives from any public
assistance program, or because the
applicant has in good faith exercised
any right under the Consumer Credit
Protection Act.
1
ECOA and Regulation B
require that, when taking adverse action
against an applicant, a creditor must
provide the applicant with a statement
of reasons for the action taken.
2
This
statement of reasons must be ‘‘specific’’
and indicate the ‘‘principal reason(s) for
the adverse action’’;
3
moreover, the
specific reasons disclosed must ‘‘relate
to and accurately describe the factors
actually considered or scored by a
creditor.’’
4
Adverse action notice
requirements promote fairness and
equal opportunity for consumers
engaged in credit transactions, by
serving as a tool to prevent and identify
discrimination through the requirement
that creditors must affirmatively explain
their decisions. In addition, such
notices provide consumers with a key
educational tool allowing them to
understand the reasons for a creditor’s
action and take steps to improve their
credit status or rectify mistakes made by
creditors.
5

The CFPB provides sample forms
(currently codified in Regulation B) that
creditors may use to satisfy their
adverse action notification
requirements, if appropriate. These
forms include a checklist of sample
reasons for adverse action which
‘‘creditors most commonly consider,’’
6

as well as an open-ended field for
creditors to provide other reasons not
listed. The sample forms are used by
creditors to satisfy certain adverse
action notice requirements under ECOA
and the Fair Credit Reporting Act
(FCRA), though the statutory obligations
under each remain distinct.
7
While the
VerDate Sep<11>2014 16:02 Apr 16, 2024 Jkt 262001 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 E:\FR\FM\17APR1.SGM 17APR1
lotter on DSK11XQN23PROD with RULES1

27362 Federal Register/ Vol. 89, No. 75 / Wednesday, April 17, 2024 / Rules and Regulations
whole or in part on any information contained in
a consumer report, including employers, landlords,
insurers, and other users of consumer reports. 15
U.S.C. 1681m(a). This circular focuses on ECOA’s
adverse action notification requirements and does
not address requirements under FCRA.
8
12 CFR part 1002 (app. C), comment 3.
9
The CFPB has previously issued guidance
affirming that creditors are not excused from their
adverse action notice obligations under ECOA
simply because they rely on complex algorithmic
underwriting models in making credit decisions.
See CFPB, Consumer Financial Protection Circular
2022–03: Adverse action notification requirements
in connection with credit decisions based on
complex algorithms (May 26, 2022) (‘‘Consumer
Financial Protection 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/. Building on that
previous guidance, this Circular focuses on the
accuracy and specificity requirements of those
notices, even when such models, driven by data
gathered outside of traditional credit reports or
applications, are utilized.
10
See Bd. of Governors of the Fed. Reserve Sys.,
Consumer Fin. Prot. Bureau, Fed. Deposit Insurance
Corp., Nat’l Credit Union Admin., and Office of the
Comptroller of the Currency, Interagency Statement
on the Use of Alternative Data in Credit
Underwriting, at 2 (‘‘For example, using . . . data
such as cashflow data, that are directly related to
consumers’ finances and how consumers manage
their financial commitments may present lower
risks than other data.’’); see also Consumer Fin.
Prot. Bureau, Dep’t of Just., Equal Emp. Opportunity
Comm’n, Fed. Trade Comm’n, Joint Statement on
Enforcement Efforts Against Discrimination and
Bias in Automated Systems, at 3 (Apr. 23, 2023)
(‘‘Joint Statement on Enforcement’’) (‘‘Automated
system outcomes can be skewed by . . . datasets
that incorporate historical bias’’ and ‘‘can correlate
data with protected classes, which can lead to
discriminatory outcomes.’’).
11
See Joint Statement on Enforcement at 3.
12
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(2)–2 (emphasis added).
13
12 CFR part 1002 (app. C), comment 4.
14
See 12 CFR part 1002 (app. C), comment 3.
15
See 15 U.S.C. 1691(d)(2); 12 CFR
1002.9(a)(2)(i).
16
12 CFR part 1002 (app. C), comment 4.
17
12 CFR part 1002 (supp. I), sec. 1002.9, para.
9(b)(2)–4. Indeed, because a creditor is not required
to explain the relationship of a factor to the credit
decision, see id. at para. 3, transparency about the
specific reason for a denial may be even more
important to help consumers understand which
factors drove the credit decision in instances where
the relationship between that factor and the credit
decision may not be intuitive to the consumer.
sample forms provide examples of
commonly considered reasons for taking
adverse action, ‘‘[t]he sample forms are
illustrative and may not be appropriate
for all creditors.’’
8
Reliance on the
checklist of reasons provided in the
sample forms will satisfy a creditor’s
adverse action notification requirements
only if the reasons disclosed are specific
and indicate the principal reason(s) for
the adverse action taken.
Some creditors use complex
algorithms involving ‘‘artificial
intelligence’’ and other predictive
decision-making technologies in their
underwriting models.
9
These complex
algorithms sometimes rely on data that
are harvested from consumer
surveillance or data not typically found
in a consumer’s credit file or credit
application. The CFPB has underscored
the harm that can result from consumer
surveillance and the risk to consumers
that these data may pose. Some of these
data may not intuitively relate to the
likelihood that a consumer will repay a
loan. The CFPB and the prudential
regulators have previously noted that
these data may create additional
consumer protection risk.
10
This
circular addresses adverse action notice
requirements under ECOA and
Regulation B; financial institutions also
must ensure their use of data and
advanced technologies fully complies
with other legal requirements, such as
the prohibition against illegal
discrimination. The CFPB, along with
the Department of Justice and other
enforcement agencies, have pledged to
vigorously use the agencies’ collective
authorities to protect individuals’ rights
regardless of whether legal violations
occur through traditional means or
advanced technologies.
11

Under ECOA and Regulation B a
creditor must provide an applicant with
a statement of specific reason(s) for an
adverse action; these reasons must
‘‘relate to and accurately describe the
factors actually considered or scored by
a creditor.’’
12
A creditor therefore may
not rely solely on the unmodified
checklist of reasons in the sample forms
provided by the CFPB if the reasons
provided on the sample forms do not
reflect the principal reason(s) for the
adverse action. As explained in
Regulation B, ‘‘[i]f the reasons listed on
the forms are not the factors actually
used, a creditor will not satisfy the
notice requirement by simply checking
the closest identifiable factor listed.’’
13

Rather, the sample forms merely
provide an illustrative and non-
exclusive list.
14
Thus, if the principal
reason(s) a creditor actually relies on is
not accurately reflected in the checklist
of reasons in the sample forms, it is the
duty of the creditor—if it chooses to use
the sample forms—to either modify the
form or check ‘‘other’’ and include the
appropriate explanation, so that the
applicant against whom adverse action
is taken receives a statement of reasons
that is specific and indicates the
principal reason(s) for the action taken.
Creditors that simply select the closest,
but nevertheless inaccurate, identifiable
factors from the checklist of sample
reasons are not in compliance with the
law. Creditors may not evade this
requirement, even if the factors actually
considered or scored by the creditor
may be surprising to consumers, as may
be the case when a creditor relies on
complex algorithms that, for instance,
consider data that are not typically
found in a consumer’s credit file or
credit application.
Because it is unlawful for a creditor
to fail to provide a statement of specific
reasons for the action taken,
15
a creditor
will not be in compliance with the law
by disclosing reasons that are overly
broad, vague, or otherwise fail to inform
the applicant of the specific and
principal reason(s) for an adverse
action. Just as an accurate description of
the factors actually considered or scored
by a creditor is critical to ensuring
compliant adverse action notifications,
sufficient specificity is also required.
Such specificity is necessary to ensure
consumer understanding is not
hindered by explanations that obfuscate
the principal reason(s) for the adverse
action taken. For instance, Regulation B
provides the example that a creditor
should disclose ‘‘insufficient bank
references’’ and not ‘‘insufficient credit
references,’’ which is listed on the
CFPB’s sample form, if the creditor
considers only references from banks
and other depository institutions and
not from other institutions.
16

Specificity is particularly important
when creditors utilize complex
algorithms. Consumers may not
anticipate that certain data gathered
outside of their application or credit file
and fed into an algorithmic decision-
making model may be a principal reason
in a credit decision, particularly if the
data are not intuitively related to their
finances or financial capacity. As noted
in the Official Commentary to
Regulation B, a creditor must ‘‘disclose
the actual reasons for denial . . . even
if the relationship of that factor to
predicting creditworthiness may not be
clear to the applicant.’’
17
For instance,
if a complex algorithm results in a
denial of a credit application due to an
applicant’s chosen profession, a
statement that the applicant had
‘‘insufficient projected income’’ or
‘‘income insufficient for amount of
credit requested’’ would likely fail to
meet the creditor’s legal obligations.
Even if the creditor believed that the
reason for the adverse action was
broadly related to future income or
earning potential, providing such a
reason likely would not satisfy its duty
to provide the specific reason(s) for
adverse action. Concerns regarding
specificity may also arise when
creditors take adverse action against
consumers with existing credit lines.
For example, if a creditor decides to
lower the limit on, or close altogether,
VerDate Sep<11>2014 16:02 Apr 16, 2024 Jkt 262001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 E:\FR\FM\17APR1.SGM 17APR1
lotter on DSK11XQN23PROD with RULES1

27363 Federal Register/ Vol. 89, No. 75 / Wednesday, April 17, 2024 / Rules and Regulations
18
See, e.g., Complaint, FTC v. CompuCredit, No.
1:08–cv–1976–BBM–RGV, 34–35 (N.D. Ga. filed
June 10, 2008) (alleging that creditor made
decisions to limit active credit lines based on
behavioral data including shopping at certain
disfavored merchants, such as pawn shops and
night clubs), https://www.ftc.gov/sites/default/files/
documents/cases/2008/06/080610
compucreditcmplt.pdf; see also Fed. Trade
Comm’n, Big Data: A Tool for Inclusion or
Exclusion, at 9 (Jan. 2016), https://www.ftc.gov/
system/files/documents/reports/big-data-tool-
inclusion-or-exclusion-understanding-issues/
160106big-data-rpt.pdf (describing use of shopping
or other spending behavior to make credit
decisions).
19
However, inclusion of such factors in a credit
model may be improper for other reasons, including
that use of such factors may violate ECOA or other
laws if they constitute unlawful discrimination on
a prohibited basis. As noted previously, this
circular focuses on a creditor’s obligation to
accurately and specifically identify the principal
reason(s) for adverse action, and not whether any
particular type of factor or data otherwise complies
with the law.
20
See 12 CFR 1002.2(c) (defining ‘‘adverse
action’’).
21
See CFPB, Revocations or Unfavorable Changes
to the Terms of Existing Credit Arrangements, 87 FR
30097 (May 18, 2022) (discussing ECOA’s
application to changes to existing credit
arrangements); see also CFPB, Credit Card Line
Decreases (June 29, 2022), https://
www.consumerfinance.gov/data-research/research-
reports/credit-card-line-decreases/ (describing
industry practices related to credit line decreases
and attendant consumer impacts).
22
Consumer Financial Protection Circular 2022–
03.
a consumer’s credit line based on
behavioral data, such as the type of
establishment at which a consumer
shops or the type of goods purchased, it
would likely be insufficient for the
creditor to simply state ‘‘purchasing
history’’ or ‘‘disfavored business
patronage’’ as the principal reason for
adverse action.
18
Instead, the creditor
would likely need to disclose more
specific details about the consumer’s
purchasing history or patronage that led
to the reduction or closure, such as the
type of establishment, the location of
the business, the type of goods
purchased, or other relevant
considerations, as appropriate.
19

As discussed in an advisory opinion,
these requirements under ECOA extend
to adverse actions taken in connection
with existing credit accounts (i.e., an
account termination or an unfavorable
change in the terms of an account that
does not affect all or substantially all of
a class of the creditor’s accounts
20
), as
well as new applications for credit.
21

The CFPB has also made clear that
adverse action notice requirements
apply equally to all credit decisions,
regardless of whether the technology
used to make them involves complex or
‘‘black-box’’ algorithmic models, or
other technology that creditors may not
understand sufficiently to meet their
legal obligations.
22
As data use and
credit models continue to evolve,
creditors have an obligation to ensure
that these models comply with existing
consumer protection laws.
About Consumer Financial Protection
Circulars
Consumer Financial Protection
Circulars are issued to all parties with
authority to enforce Federal consumer
financial law. The CFPB is the principal
Federal regulator responsible for
administering Federal consumer
financial law, see 12 U.S.C. 5511,
including the Consumer Financial
Protection Act’s prohibition on unfair,
deceptive, and abusive acts or practices,
12 U.S.C. 5536(a)(1)(B), and 18 other
‘‘enumerated consumer laws,’’ 12 U.S.C.
5481(12). However, these laws are also
enforced by State attorneys general and
State regulators, 12 U.S.C. 5552, and
prudential regulators including the
Federal Deposit Insurance Corporation,
the Office of the Comptroller of the
Currency, the Board of Governors of the
Federal Reserve System, and the
National Credit Union Administration.
See, e.g., 12 U.S.C. 5516(d), 5581(c)(2)
(exclusive enforcement authority for
banks and credit unions with $10
billion or less in assets). Some Federal
consumer financial laws are also
enforceable by other Federal agencies,
including the Department of Justice and
the Federal Trade Commission, the
Farm Credit Administration, the
Department of Transportation, and the
Department of Agriculture. In addition,
some of these laws provide for private
enforcement.
Consumer Financial Protection
Circulars are intended to promote
consistency in approach across the
various enforcement agencies and
parties, pursuant to the CFPB’s statutory
objective to ensure Federal consumer
financial law is enforced consistently.
12 U.S.C. 5511(b)(4).
Consumer Financial Protection
Circulars are also intended to provide
transparency to partner agencies
regarding the CFPB’s intended approach
when cooperating in enforcement
actions. See, e.g., 12 U.S.C. 5552(b)
(consultation with CFPB by State
attorneys general and regulators); 12
U.S.C. 5562(a) (joint investigatory work
between CFPB and other agencies).
Consumer Financial Protection
Circulars are general statements of
policy under the Administrative
Procedure Act. 5 U.S.C. 553(b). They
provide background information about
applicable law, articulate considerations
relevant to the Bureau’s exercise of its
authorities, and, in the interest of
maintaining consistency, advise other
parties with authority to enforce Federal
consumer financial law. They do not
restrict the Bureau’s exercise of its
authorities, impose any legal
requirements on external parties, or
create or confer any rights on external
parties that could be enforceable in any
administrative or civil proceeding. The
CFPB Director is instructing CFPB staff
as described herein, and the CFPB will
then make final decisions on individual
matters based on an assessment of the
factual record, applicable law, and
factors relevant to prosecutorial
discretion.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2024–08003 Filed 4–16–24; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2023–2233; Project
Identifier MCAI–2023–00755–E; Amendment
39–22704; AD 2024–05–12]
RIN 2120–AA64
Airworthiness Directives; Rolls-Royce
Deutschland Ltd & Co KG
AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
SUMMARY: The FAA is adopting a new
airworthiness directive (AD) for all
Rolls-Royce Deutschland Ltd & Co KG
(RRD) Model Trent 1000–AE3, Trent
1000–CE3, Trent 1000–D3, Trent 1000–
G3, Trent 1000–H3, Trent 1000–J3,
Trent 1000–K3, Trent 1000–L3, Trent
1000–M3, Trent 1000–N3, Trent 1000–
P3, Trent 1000–Q3, and Trent 1000–R3
engines. This AD is prompted by reports
of wear in the combining spill-valve
(CSV) assembly of certain hydro-
mechanical units (HMUs). This AD
requires removing certain HMUs from
service and replacing with a serviceable
part or modifying the HMU by replacing
the CSV assembly, which is an optional
terminating action; and prohibits
installing certain HMUs unless the
HMU is a serviceable part, as specified
in a European Union Aviation Safety
Agency (EASA) AD, which is
incorporated by reference. The FAA is
issuing this AD to address the unsafe
condition on these products.
DATES: This AD is effective May 22,
2024.
The Director of the Federal Register
approved the incorporation by reference
VerDate Sep<11>2014 16:02 Apr 16, 2024 Jkt 262001 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 E:\FR\FM\17APR1.SGM 17APR1
lotter on DSK11XQN23PROD with RULES1