How should you prompt AI to write a loan-denial explanation letter that's clear and compliant

The Prompt

Draft a loan-denial explanation letter for [applicant].

Specific reason(s) for denial: [the actual underwriting factors — credit score range, DTI ratio, insufficient history, etc.]
Required disclosures: [note any specific required language your compliance team mandates]

State the actual reason(s) clearly and specifically — avoid vague language like "did not meet our criteria" without explaining which criteria.

Why This Prompt Works

Adverse-action notices are subject to specific regulatory disclosure requirements in most jurisdictions precisely because vague denial language (“did not meet our criteria”) doesn’t give the applicant an actionable understanding of what to address — stating the actual underwriting factor is both the more useful letter and the more defensible one.

How to Customize It

Insert your compliance team’s exact required disclosure language — that’s a legal requirement specific to your jurisdiction and institution, not something to leave to the model’s general knowledge. If the denial was based on a credit report, include the required information for the applicant to obtain a free copy of that report, since that’s a separate disclosure obligation.

Common Mistakes to Avoid

Don’t send this without compliance review — adverse-action notices are one of the most regulated pieces of consumer financial communication, and this prompt drafts language, not compliance sign-off. Also avoid combining multiple denial reasons into one vague statement when the applicant is entitled to know each specific factor that counted against them.

Bottom Line

A compliant denial letter states the real, specific reason clearly — but the compliance-required disclosure language still has to come from your compliance team, not the model.