Landlords & Property Managers: Using Credit Reports

Landlords and Property Managers: Using Credit Reports

If you are a property manager or landlord and want to check credit reports to evaluate rental applications, you can use tenant consumer reports as long as you adhere to the provisions of Fair Credit Reporting Act (FCRA). The FCRA is designed to assure privacy of consumer credit reports and to guarantee that information provided by Consumer Reporting Agencies (CRA) are as accurate as possible. The FCRA requires landlords who deny a lease based on applicant's consumer report to provide the applicant with an "adverse action notice".

For more details, check the links below:

• Tenant Screening Adverse Action
• Landlord credit checks
• Commercial Property credit checks

What is a Consumer Credit Report?

A consumer report contains information about the applicant's credit characteristics, lifestyle, general reputation, character, & other personal records. Applicants are often asked to provide references. Whether verifying such references is covered by the FCRA depends on who does the verification. A reference verified by the landlord is not covered by the Act; a reference verified by a CRA is covered.

Landlords often use consumer reports to help them evaluate rental applications.
These reports include:

• A report from a tenant screening service that describes the applicant's rental history.

• A credit report for the service obtained from a credit bureau;

• A report from a reference-checking service that contacts previous landlords or other parties on behalf of the rental property owner.

Landlords often ask applicants to give personal, employment and previous landlord references on their rental applications. Whether verifying such references is covered by the FCRA depends on who does the verification. A reference verified by the landlord's employee is not covered by the Act; a reference verified by an agency hired by the landlord to do the verification is covered.

What is an Adverse Action?

Any action taken by a landlord that is unfavorable to the interests of a rental applicant is known as adverse action.

Some of the common actions are as follows:

• Application denial;

• Request for a co-signer on the lease;

• Request a deposit that would not be required for another applicant;

• Request a larger deposit than might be required for another applicant; and

• Increase the rent amount than for another applicant.

The Adverse Action Notice

When an adverse action is taken that is based solely or partly on information in a consumer report or tenant screening report, the FCRA requires you to provide a notice of the adverse action to the consumer. The notice must contain the following:

• Name, address and telephone number of the CRA that supplied the consumer report, including a toll-free telephone number(s) for CRAs that maintain files nationwide;

• A statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and

• A notice of the individual's right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer's right to a free report from the CRA upon request within 60 days.

Disclosure of this information is very important because some consumer reports contain errors.

The adverse action notice is required even if information in the consumer report was not the main reason for denial or increase in security deposit or rent or other adverse action. Please note even if the information in the report plays only a small part in the overall decision, still the applicant must be notified.

The adverse action notice must name the CRA that provided the report to the landlord, even if the information came from another CRA.

For example, a report from XYZ TenantScreen includes a credit report from ABC Credit Bureau. The credit report may include negative information that may prompt the landlord to turn down the rental application. The adverse action notice should name XYZ TenantScreen as the CRA because XYZ TenantScreen actually provided the report to the landlord. The notice also can explain that XYZ TenantScreen got the credit information from ABC Credit Bureau, but that is not required under the FCRA.

While oral adverse action notices are allowed, written notices provide proof of FCRA compliance.

Sample Tenant Adverse Action Letter
A Summary of Your Rights Under the Fair Credit Reporting Act

Some Sample Adverse Action Scenarios:

1. A landlord who orders a consumer report from a CRA. Information contained in the report leads to further investigation of the applicant. The rental application is denied because of that investigation.
   
   Since information in the report prompted the adverse action in this case, an adverse action notice must be sent to the consumer.




2. An applicant with an unfavorable credit history, like past-due credit accounts, who is denied an apartment. Although the credit history was considered in the decision, the applicant's poor reputation as a tenant in his current location played a more important role.
   
   The applicant is entitled to an adverse action notice because the credit report played a part, however minor, in the denial.




3. A person with an unfavorable credit history, like a bankruptcy, but no other negative indicators, who applies for an apartment. Rather than deny the application, the landlord offers to rent the apartment, requiring a security deposit that is double the normal amount.
   
   The applicant is entitled to an adverse action notice because the credit report influenced the landlord's decision to require a higher security deposit from the applicant.

Non-Compliance with the FCRA

Landlords who fail to provide required disclosure notices face legal consequences. The FCRA allows individuals to sue landlords for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations of the FCRA. In addition, the Federal Trade Commission (FTC), other federal agencies and the states may sue landlords for non-compliance and get civil penalties.

However, a landlord who inadvertently fails to provide a required notice in an isolated case has legal protections, so long as he or she can demonstrate "that at the time of the . . . violation he maintained reasonable procedures to assure compliance" with the FCRA.

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