Denied a Car Loan? What the Adverse Action Notice Says

The short answer

If a lender turns down your car loan, it generally has to tell you in writing within 30 days of receiving your completed application, and give you either the specific reasons or a notice that you can get them by asking within 60 days (12 CFR 1002.9). If your credit report played a part, the Consumer Financial Protection Bureau says the lender also has to give you the credit score it used, the key factors behind that score, the credit bureau's contact information, and your right to a free copy of that report within 60 days (CFPB). That letter is the best map you'll get for your next application.

What the notice has to include

Under Regulation B (the rule that carries out the Equal Credit Opportunity Act), a written notice of adverse action must include:

• A statement of the action taken, such as a denial.
• The creditor's name and address.
• A notice that federal law prohibits credit discrimination, and the name and address of the federal agency that oversees that creditor.
• Either the specific reasons, or how to request them within 60 days. If you ask, the lender has 30 days to give them to you.

The reasons have to be specific. Regulation B says it isn't enough for a lender to say only that you didn't meet its internal standards or didn't reach a qualifying score on its scoring system.

When a dealer sends your application to several lenders

Dealer-arranged financing often goes to more than one lender at once. Regulation B covers that, too. When an application goes to more than one creditor on your behalf:

• If you accept or use credit from one of them, the others don't have to send you a notice.
• If no credit is offered, or you don't accept what was offered, each creditor that took adverse action has to comply, either directly or through a third party, such as the dealer.
• A notice sent by a third party has to identify each creditor it's sent for.

So if you left a dealership without financing, watch your mail and email. You may get more than one letter, and each one can tell you something different.

A counteroffer counts, too

Sometimes a lender doesn't say no. It offers different terms, such as a larger down payment or a higher rate. Regulation B treats that as a counteroffer. If you don't accept or use it, the lender has 90 days after the counteroffer to send a notice of adverse action.

How to use the letter before you apply again

1. Read the reasons. Regulation B's sample notice lists reasons such as "excessive obligations in relation to income," "limited credit experience," "unable to verify income" and "delinquent past or present credit obligations with others." Each points to a different fix. Our guide to debt-to-income ratio for a car loan explains one of the most common.
2. Get your free report from the bureau named in the notice within 60 days.
3. Dispute errors. If something on the report is wrong, the CFPB says the credit reporting company has to investigate and correct errors it finds. See credit report errors before pre-approval.
4. Don't keep reapplying blind. Fix what you can, then compare offers in a short window. Our post on shopping auto loans without hurting your score covers how that works.
5. If credit is the issue, our page on bad-credit car loans in Texas covers what to expect.

If you think you were treated unfairly because of race, sex, age, marital status, receiving public assistance, or another protected basis, the CFPB explains your rights under the ECOA and how to submit a complaint.

This article is general information, not legal advice.

Bottom line

A car-loan denial should come with a written explanation, or a way to get one, and a free look at the credit report behind it. Read every notice, get the report, fix any errors, and apply again with a plan instead of a guess.

Check your pre-approval: Start the form.