In a recent article about evaluating prospective tenants, I mentioned that the Fair Credit Reporting Act (FCRA) imposes notice obligations on landlords when denying a tenant application. In this article, I’ll provide an overview of those requirements and a (free) form for your reference.
When the FCRA Applies
The FCRA applies when a landlord bases an adverse action (more on that later) in whole or in part on a “consumer report.” A consumer report is any screening or credit information supplied by a third party, such as any tenant screening service or credit report provider. This certainly includes any credit bureau or other service providing a credit report, but also includes agencies providing screening information such as criminal background checks, reports of prior evictions, and the like.
The FCRA also applies when a denial of an application is based on information provided by a third party, other than a consumer report. This may include wage information provided by the applicant’s employer, for example. In the case of information other than a consumer report, the language of the FCRA refers to a denial of credit, rather than the broader “adverse action” terminology. To be sure, we treat the two as one in the same and comply with the FCRA notice requirements for an adverse action regardless of whether the decision is based on a consumer report or other third party information.
In the event that a landlord takes an adverse action based solely on information provided by the tenant, such as stated income in an application, then the FCRA imposes no obligations on the landlord. However, where the consumer report or third-party information plays any part in the decision, then it does. Again, to insure compliance, whenever we obtain a credit report or conduct any form of further investigation of an application, we’ll provide the required notice.
However, if you don’t use any form of tenant screening, credit service, or conduct any form of investigation, then the good news is that the FCRA doesn’t apply. The bad news is that it will after you evict your current tenant and start using a tenant screening service.
Adverse Action under the FCRA
For landlords, the requirements of the FCRA are triggered by an “adverse action.” Translating the legalese, an adverse action is any unfavorable action by a landlord in response to a tenant application. In other words, it’s far broader than a denial. While a denial constitutes an adverse action, so does a conditional approval, such as requiring a greater deposit, a co-signer, or an additional month’s rent. The Federal Trade Commission provides some guidelines for determining whether the FCRA applies here. After reading them, you’ll likely conclude that, when in doubt, it does.
Once a landlord takes an adverse action, the FCRA requires the landlord to send a notice to the applicant informing him of the action taken and advising the tenant of his rights under the FCRA, including the right to obtain his consumer report from the screening service or credit bureau, to dispute inaccurate information, or to request further information from you when the adverse action is based on information other than the consumer report.
Tips, Resources, Free Stuff, and Fun with Disclaimers
In summary, here are some good rules to follow:
- Always conduct tenant screening. The risks of not doing so, outweigh the costs of the legal compliance part. Here is a list of some tenant screening services.
- If you deny a tenant application or make approval conditional in any way, provide an Adverse Action Notice.
- Consider hiring an attorney to ensure that the Adverse Action Notice that you use is in a form that complies with the FCRA and applicable state law.
- Read the information provided by the FTC on the subject here.
- Go ahead and download this form: Adverse Action Letter, which is what we use as an Adverse Action Notice, and this FTC publication: FCRA Summary of Rights that we include with that notice. But. . .
Use this form for reference only. We don’t warrant that it will comply with legal requirements. That’s why we said that stuff about hiring an attorney.
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Holy Flashback, Batman~ It’s the FCRA!! I still suffer flashbacks about that puppy
Excellent article… and on Christmas Eve, too~
I’m impressed
also check out “landlording: a handyman’s guide to scrupulous landlording”
Do I have the right to select what I consider to be the “most qualified” applicant from a pool of applicants? Can I specify an application period of one or two weeks to ensure that I wind up with multiple applicants or must i rent to the first qualified applicant? And who determines what “qualified” means?
My apologies if you’ve answered this question elsewhere. I just stumbled across your site and I’m only up to December in the archives. Great info so far!
Greg, Good questions. You do indeed have the right to select among multiple applicants. However, you are prohibited from discriminating based on certain criteria under federal and state law. The most obvious restriction, for example, is discrimination based on race. However, state fair housing laws may also impose restrictions that may not be as obvious, such as qualifying a tenant based on family status (kids/no kids, etc.) which might require a little more research on your part to determine the requirements of your state’s laws. One other thing: while your intention is obviously not to discriminate based on impermissible criteria such as race, having well-defined written financial criteria (income and credit requirements) will go a long way to prevent someone from making a claim of discrimination based on a rejection. Best of luck!
As a landlord, how can I report my tenant’s EXCELLENT payment history? They’ve been great tenants & never missed a payment. (for over 7 years) They are about to buy a house & I want to give them a pat on the back for always being good folks to me. Everything I find tells me I have to have more than one account to submit to the 2 agencies & I have to have special software.