Landlords & Property Managers: Using Credit Reports

Landlords and Property Managers: Using Credit Reports

Landlords and Property Managers that want to use credit reports to assist during the tenant screening process can use tenant consumer reports or tenant credit checks as long as they follow the Fair Credit Reporting Act (FCRA) provisions. The FCRA has been put in place to help ensure the privacy of consumer credit reports and to guarantee that the information provided by Consumer Reporting Agencies (CRA) such as AAA Credit Screening Services is as price & accurate as possible. Landlords that deny applicants a lease contract are required to provide applicants with Adverse Action notices.

To read more, check out the links below:

• Tenant Screening Services

• Commercial Tenant Credit Checks

• Tenant Adverse Action

What is a Consumer Credit Report?

Consumer reports contain information about an applicant’s credit profile including their character, general reputation, driving history, lifestyle & other personal records. Landlords often ask applicants to provide references and whether verifying these references are covered by the FCRA depends on who is conducting the reference checks. A reference check conducted by the landlord is not covered through FCRA, but a reference check through a CRA is covered.

What is an Adverse Action?

Actions taken by landlords that are considered unfavorable to the rental applicants are considered to be adverse actions.

Common adverse actions are:

• Tenant Application denial;

• Requesting a co-signer to be on the lease;

• Requesting a deposit that would not be required for other applicants;

• Requesting a larger deposit that would not be required for other applicants; and

• Increasing the rent amount above what another applicant would be charged.

The Adverse Action Notice

When landlords or property manages take adverse action based on the information provided in a consumer report or tenant screening report, the FCRA requires landlords to provide the applicant with a notice of adverse action. The notice must contain the following:

• CRA that provided the consumer report's Name, address & phone number, including a toll-free phone number(s) for CRAs that maintain files nationwide;

• A statement indicating that the CRA that supplied the report did not make the decision to take the adverse action & cannot provide reasons for the adverse action; and

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

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

In instances where the consumer report was not the main reason for denying, asking for higher rent or an increased security deposit for the applicant, an adverse action is still required. Even if the consumer report only played a small part of the decision making process, applicant are still required to be notified.

The adverse action notice must list the CRA that provided the report to the landlord, even if the information came from another CRA. For example, if a report from TTT TenantScreening includes a credit report from GHI Credit Bureau. The credit report may show negative info that may prompt the landlord to turn down the rental application. The adverse action notice should name TTT TenantScreening as the CRA because TTT TenantScreening actually furnished the report to the landlord. The notice also can explain that TTT TenantScreening got the credit information from AGHI Credit Bureau, but that is not required under the FCRA.

While oral adverse action notices are acceptable, written notices provide proof of a landlord's FCRA compliance.

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

Some Sample Adverse Action Scenarios:

1. If a landlord ordered a tenant credit check from a CRA that contains information leading to futher investigation into the applicant & the applicant is denied due to that investigation
   
   The information on the report prompted the adverse action against the applicant, and therefor an adverse action notice must be sent to the applicant.
   
   

2. The applicant has an unfavorable credit history, including past-due creditor accounts & is therefor denied a lease. Though the credit history was a consideration during the decision making process, the applicant's reputation as a tenant with their current landlord also played an important role.
   
   Even though the credit played a minor part in the overall decision to deny, the applicant is still entitled to an adverse action notice.
   
   

3. Applicant's with unfavorable credit records including bankruptcy records, but without other negative remarks applying for a rental agreement may cause the landlord to offer a lease, but require a security deposit that may be double the normal amount
   
   In this case the applicant is entitled to an adverse action notification because the credit report was used in the final decision making process requiring that exta deposit.

Non-Compliance with the FCRA

Landlords that do not adhere to the adverse action disclosure notice requirements may face legal consequences. The FCRA does allow applicants to sue landlords for damages caused to them in federal court. Applicants that are successful in their suits may be entitled to recover court costs and reasonal amounts of legal fees from the landlord. The law also allows applicants to seek puntitive damages if landlords deliberately violated the FCRA. The Federal Trade Commission (FTC) and other federal agencies or states may sue landlods for non-compliance and may incur civil penalties.

Landlords who inadvertently fail to provide the required notifications in isolated cases do have legal protections as long as they demonstrate "that at the time of the . . . violation he maintained reasonable procedures to assure compliance" with the FCRA.

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