Q: I want to reject an applicant because of his rental history. I can see from the rental application that he never stays in one place for very long. His excuses for the frequent moves are not convincing. I have not run a credit check. My question is whether I need to send an adverse action notice when I reject him.
The Fair Credit Reporting Act is the law that requires landlords to send an adverse action notice to a rental applicant is some situations.
This notice applies not only to rejection of a rental applicant, but also adverse actions like requiring a higher deposit, rent or a cosigner in order to lease a property.
An adverse action notice is required if the information that warrants the adverse action–rejection, etc., came from a consumer report, with includes a credit report, and other reports prepared by a tenant screening agency, such as Tenant Verification Service.
On the other hand, the notice is not required if the information on which the landlord bases the decision did not come from a consumer report, for instance, if the information came directly from the applicant as in this case, or from the landlord’s own investigation.
In fact, the Federal Trade Commission, which oversees the FCRA, issued this statement of clarification: “We believe that landlords have no obligations under (the FCRA) to provide notices when they base an adverse landlord-tenant decision upon information obtained from persons other than consumer reporting agencies, such as information from an applicant’s previous landlord.”
The FTC also offers some examples of when an adverse action notice should be included in an applicant rejection letter:
1. A landlord who orders a consumer report from a tenant screening agency. Information contained in the report leads to further investigation of the applicant. The rental application is denied because of that investigation.
Because 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.
4. A landlord who hires a reference-checking service to verify information included on a rental application. Because the service reports that the applicant does not work for the employer listed on the application, the rental application is denied.
The applicant is entitled to an adverse action notice. The report is a consumer report from a CRA (the agency checking the references provided by the consumer on the application), and its report influenced the landlord’s decision to deny the application.
5. A landlord who makes it a practice to approve an application if the prospective tenant shows an adequate income or has a favorable credit report, is dealing with an applicant who has an inadequate income and a bad credit report.
The applicant is entitled to an adverse action notice because the credit report influenced the denial, even though income was another factor.
When an adverse action is taken that is based solely or partly on information in a consumer report, the FCRA requires the landlord to provide a notice of the adverse action to the applicant that includes:
The name, address and telephone number of the agency that supplied the consumer report, including a toll-free telephone number if available;
A statement that the agency 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 agency furnished, and the consumer’s right to a free report from the agency upon request within 60 days.
Disclosure of this information is important because some consumer reports might contain errors, and this gives the applicant the opportunity to correct these mistakes.
While verbal adverse action notices are allowed, written notices provide proof of FCRA compliance.
This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).
Click Here to Receive Landlord Credit Reports.
Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.
