Adverse action codes

The Equal Credit Opportunity Act and Regulation B require that any creditor who takes adverse action against an applicant — denying credit in substantially the amount or terms requested, counter-offering on materially different terms, terminating or making an unfavorable change to an existing account (provided the change is not class-wide), or refusing a requested credit-line increase^{[3]Jump to source 3 in the sources list} — provide the applicant with a written notice containing a statement of specific reasons that indicates the principal reason(s) for the decision^{[1]Jump to source 1 in the sources list[2]Jump to source 2 in the sources list}. The notice must arrive within 30 days of a completed application^{[2]Jump to source 2 in the sources list}. In practice, lenders disclose up to four reasons — a convention rooted in the CFPB’s Official Interpretation of Regulation B (Comment 9(b)(2)-1), which treats “disclosure of more than four reasons” as “not likely to be helpful to the applicant”^{[4]Jump to source 4 in the sources list}. Neither the statute nor the regulation imposes a numeric cap; four-reason practice is interpretive guidance, not a statutory limit.

For machine-learning models, adverse-action reasons are typically derived from per-decision feature attribution — most commonly SHAP values — by identifying the features that pushed the score in the unfavorable direction and mapping those features to a curated set of ECOA-compliant reason strings. The CFPB has confirmed in Circular 2022-03 that ECOA and Reg B apply fully to credit decisions based on “complex algorithms” including AI and ML, and that complexity is not a defense^{[6]Jump to source 6 in the sources list}. Circular 2023-03 went further: creditors may not use the Regulation B Appendix C sample-form checklist unmodified where the listed reasons do not accurately describe the factors the creditor’s model actually considered or scored^{[7]Jump to source 7 in the sources list}. The CFPB has not endorsed any specific explainability method; what matters is that the resulting reasons are specific and faithful to the model’s actual decision factors^{[10]Jump to source 10 in the sources list}.

Common reason-code categories

These categories are illustrative industry conventions — drawn from the Regulation B Appendix C sample-form C-1 checklist^{[5]Jump to source 5 in the sources list} and from FICO and VantageScore reason factors — not an officially codified taxonomy. Creditors must list reasons that reflect the factors their model actually used, modifying the Appendix C checklist as needed (CFPB Circular 2023-03)^{[7]Jump to source 7 in the sources list}.

ECOA vs. FCRA

ECOA and FCRA impose two parallel regimes that frequently apply to the same decision. FCRA §615 (15 U.S.C. §1681m) requires, whenever a consumer report contributed to the adverse action, that the notice additionally disclose: the name, address, and phone of the consumer reporting agency; a statement that the CRA did not make the decision; the consumer’s right to a free credit report within 60 days and to dispute the report’s accuracy; and, where used, the numerical credit score and its key factors^{[8]Jump to source 8 in the sources list[9]Jump to source 9 in the sources list}. The Regulation B Appendix C sample forms (C-1 through C-5) are designed to satisfy both ECOA and FCRA disclosures in a single notice^{[5]Jump to source 5 in the sources list[11]Jump to source 11 in the sources list}.