What does "adverse action" mean in the context of lending?

In the context of lending, "adverse action" refers specifically to actions taken by lenders that negatively impact a borrower's ability to secure a loan or credit. This term is primarily associated with situations where a borrower's application is denied. Regulatory frameworks, such as the Equal Credit Opportunity Act (ECOA), require lenders to provide a notice of adverse action if a loan application is denied based on creditworthiness or other criteria.

The definition encompasses a variety of situations where a lender's decision can be unfavorable to the borrower, but a denial of credit is the most direct and definitive example of adverse action. In contrast, the other choices depict scenarios that either do not represent a negative impact on the borrower (such as offering a lower interest rate or approving additional credit) or involve changes that benefit the borrower (like changing loan terms to more favorable rates).