CFPB Circular 2023-03: Denial Reasons Must Be Real

Source: Consumer Financial Protection Bureau
Decided: September 19, 2023
Bottom line: A lender must give you specific, real reasons for a credit denial; the CFPB guidance explaining that was withdrawn in 2025, but the statute and regulation still apply.

Background

When a lender denies a credit application, the Equal Credit Opportunity Act (ECOA) requires it to give the applicant a statement of specific reasons. 15 U.S.C. § 1691(d). Regulation B, which implements ECOA, says the reasons must be specific and indicate the principal reasons for the action, and its official commentary says they must “relate to and accurately describe the factors actually considered or scored by a creditor.” Regulation B includes sample notice forms with a checklist of common reasons, such as “insufficient credit references,” and a blank for other reasons. The FCRA has its own adverse action notice rules when a decision is based on a credit report, including disclosure of the key factors that hurt a credit score. 15 U.S.C. § 1681m(a).

Lenders increasingly use complex algorithms and data from outside a traditional credit file. In 2022, the CFPB issued Circular 2022-03, saying creditors using such models still must give specific reasons. Circular 2023-03 addressed a follow-up question.

What the rule does

Issued September 19, 2023, the circular asked whether creditors using artificial intelligence or complex models may rely on the sample-form checklist “even when those sample reasons do not accurately or specifically identify the reasons for the adverse action.” The CFPB’s answer was no:

“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.”

The circular explained that the sample forms are illustrative only. If a creditor’s real reason is not on the list, it must modify the form or check “other” and explain. “Creditors that simply select the closest, but nevertheless inaccurate, identifiable factors from the checklist of sample reasons are not in compliance with the law.” Vague reasons that obscure the real ones are also insufficient.

The circular gave examples. If an algorithm denied credit because of the applicant’s chosen profession, a reason such as “insufficient projected income” would likely not comply. If a lender cut or closed a credit line based on where a consumer shops or what they buy, “purchasing history” would likely not be enough; the lender would likely need to disclose details such as the type of establishment or goods. The circular addressed ECOA only and expressly did not address FCRA requirements, though it noted similar principles apply to the FCRA’s key-factor disclosures.

Circulars are policy statements. By their terms they do not impose legal requirements or create rights enforceable in court.

Later development. On May 12, 2025, the CFPB withdrew Circular 2023-03 along with dozens of other guidance documents, stating that it “does not intend to prioritize the enforcement of such guidance” while the withdrawal is pending and that the withdrawal “is not necessarily final.” In February 2025, the Eleventh Circuit held in Barat v. Navy Federal Credit Union that a lender’s use of a Regulation B model-form reason satisfied ECOA even though the consumer said the reason was inaccurate.

Our take

The circular did not create a new rule; it explained one already in Regulation B’s instructions to its sample forms, which say a creditor “will not satisfy the notice requirement by simply checking the closest identifiable factor listed.” That language remains in force after the withdrawal. The circular’s value was in applying it to modern underwriting, where the real reasons for a decision may be data a consumer would never guess was relevant.

Lenders have legitimate concerns about explaining complex models in a few lines, and the withdrawal reflects a different policy view at the agency. But an applicant cannot fix a problem, or spot an error or discrimination, without knowing the real reason. Barat makes these arguments harder in the Eleventh Circuit, so the specific facts of each notice matter.

What it means if your report is wrong

Keep every denial or adverse action notice. If a credit report was used, the notice should name the bureau and tell you how to get a free copy; get it and check it for errors, then dispute anything inaccurate with the bureau and the company that reported it. If the stated reason seems generic or does not match your situation, ask the lender in writing for the specific reasons. Inaccurate credit information behind a denial can support FCRA claims even where an ECOA claim over the notice itself is uncertain.

A free case review can assess how this guidance affects a claim, and there is no fee unless we win.

Sources

Primary

Commentary we reviewed

Commentary: CFPB mandates additional specificity in adverse action communications based on AI or complex credit models (Cooley)

Updated November 1, 2026. "Our take" is the firm's opinion. This page is general information, not legal advice, and later decisions may change the law.