Definition - What does Adverse Action mean?
An adverse action is the act of making a decision relating to an application for employment, credit, insurance or other, based on the information contained in a consumer report that is unfavorable for the consumer. In other words, an adverse action is an unfavorable reaction to a credit check such as a denied loan or a withdrawn job offer. Adverse action may only be taken after the consumer or applicant has been notified of the intended action.
WorkplaceTesting explains Adverse Action
According to the Fair Credit Reporting Act, a consumer (applicant) must first give written consent to the employer or institution to request a consumer report from a consumer report agency. When the results of the report give the employer or institution cause for taking adverse action against the applicant, a pre-adverse action letter must be issued to the applicant before adverse action can be taken. This is to allow an applicant time to contest any erroneous reports in their credit record. If the pre-adverse action letter is uncontested by the applicant after 7 days, the employer or institution may then proceed with taking adverse action.