Tenant screening is a make-or-break moment for landlords. Much time and effort is invested to market a vacant unit, and selecting a tenant that will be considerate, responsible and reliable is not an easy task. Fortunately, technology now allows landlords to quickly and affordably obtain high-quality information on a potential tenant’s credit, background and rental history. A good background check and credit report brings transparency and hard-facts to the tenant selection process; but with greater knowledge comes greater responsibility.
Landlords who utilize consumer reports are subject to the Fair Credit Reporting Act (“FCRA”), which was designed to protect consumer privacy and guarantee the accuracy of information provided by reporting agencies. Failure to comply with FCRA could result in a lawsuit by a potential tenant who feel they have been unjustly penalized by their consumer report. Further, state and federal agencies can also bring civil penalties for abuses of the FCRA.
While there are some legal protections for landlords in isolated incidences, with stakes this high it pays to know the rules and document your compliance.
The key provision of the FCRA that landlords MUST understand is the Adverse Action.
An Adverse Action is any action taken by a landlord, which is unfavorable to the applicants’ interest. An adverse action could take many forms:
Examples of Adverse Actions
- Denial of the application
- Additional security deposit charges
- Pre-paid rent requirements
- Requiring a co-signer on the lease
If a landlord takes any adverse action against a rental applicant based, in whole or in part (even a small part), on the information obtained from the consumer report, the FCRA REQUIRES that the landlord provide the applicant with an Adverse Action Notice.
Many reporting agencies provide form adverse action notices that comply with FCRA guidelines; check with your provider first. At a minimum, the adverse action notice must include:
- The name, address, and telephone number of the agency that provided the report.
- A statement that the agency did not make the decision to take the adverse action and cannot give the specific reason for it.
- A notice of the applicant’s right to dispute the accuracy of the information provided by the agency and the applicant’s right to receive a free report from the agency upon request within 60 days.
For the landlord’s protection, the notice should be provided in writing and a copy maintained denoting the date it was delivered to the applicant.
Maintaining written documentation of your tenant screening criteria and adverse action notices are critical steps in a professional tenant screening process and will help every landlord avoid unjustified legal claims from dissatisfied applicants.
In addition, the adverse action notice allows landlords the opportunity to help improve the consumer reports we rely on, by giving applicants the ability to correct inaccurate information on their reports.
For more information on the FCRA and Adverse Actions Notices, visit the Bureau of Consumer Protection website.
Note: I am NOT an attorney and this article should not be construed as legal advice. The FCRA is a complex subject and this article is NOT intended to serve as a comprehensive outline of the law or compliance therewith. If you have questions regarding the FCRA or are facing legal action, please seek the counsel of an attorney.