In which situation would a lender be required to issue a notice of adverse action?

A lender is required to issue a notice of adverse action primarily when there is a denial of a credit application. This requirement is rooted in regulations such as the Equal Credit Opportunity Act (ECOA) and the Fair Credit Reporting Act (FCRA), which mandate that a lender inform a borrower whenever they take an adverse action based on their creditworthiness or any information in a credit report.

In the context of denying a credit application, the notice must include the reasons for the denial, which helps borrowers understand what factors led to the decision. It ensures transparency in the lending process and allows borrowers to take corrective steps or file disputes if they believe the decision was made in error.

While other situations, such as changing loan terms or increasing fees, may impact the borrower's experience, they do not necessarily trigger the requirement for a notice of adverse action in the same way as a denial of credit does.