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If you're a
landlord, you may use consumer reports to evaluate
rental applications - as long as you follow the
provisions of the Fair Credit Reporting Act (FCRA). The
FCRA is designed to protect the privacy of consumer
report information and to guarantee that the information
supplied by consumer reporting agencies (CRAs) is as
accurate as possible. The FCRA requires landlords who
deny a lease based on information in the applicant's
consumer report to provide the applicant with an
"adverse action notice."
What is a
Consumer Report? A consumer report contains information
about a person's credit characteristics, character,
general reputation, and lifestyle. A report also may
include information about someone's rental history, such
as information from previous landlords or from public
records like housing court or eviction files. To be
covered by the FCRA, a report must be prepared by a CRA
- a business that assembles such reports for other
businesses. The most common type of CRA is the credit
bureau.
Landlords
often use consumer reports to help them evaluate rental
applications. These reports include:
A credit
report from a credit bureau, such as TransUnion,
Equifax, and Experian or an affiliate company; A report
from a tenant-screening service that describes the
applicant's rental history based on reports from
previous landlords or housing court records; A report
from a tenant-screening service that describes the
applicant's rental history, and also includes a credit
report the service got from a credit bureau; A report
from a tenant-screening service that is limited to a
credit report the service received from a credit bureau;
and A report from a reference-checking service that
contacts previous landlords or other parties listed on
the rental application 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? An adverse action is any action by a
landlord that is unfavorable to the interests of a
rental applicant. Common adverse actions by landlords
include:
Denying the
application; Requiring a co-signer on the lease;
Requiring a deposit that would not be required for
another applicant; Requiring a larger deposit than might
be required for another applicant; and Raising the rent
to a higher 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, the FCRA requires you to provide a notice of the
adverse action to the consumer. The notice must include:
the name, address and telephone number of the CRA that
supplied the consumer report, including a toll-free
telephone number 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 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 the denial,
the increase in security deposit or rent or other
adverse action. In fact, even if the information in the
report plays only a small part in the overall decision,
the applicant still 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 includes negative information that prompts
the landlord to turn down the rental application. The
adverse action notice should name ABC TenantScreen as
the CRA because ABC 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.
Take the
Case of...
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.
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.
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. For
more Information If you have questions about the FCRA or
would like a copy of the Act, call toll-free,
1-877-FTC-HELP (1-877-382-4357). You also can find the
Act online at www.ftc.gov.
To file a
complaint or to get free information on consumer issues,
visit www.ftc.gov or call toll-free, 1-877-FTC-HELP
(1-877-382-4357); TTY: 1-866-653-4261. The FTC enters
Internet, telemarketing, identity theft and other
fraud-related complaints into Consumer Sentinel, a
secure, online database available to hundreds of civil
and criminal law enforcement agencies in the U.S. and
abroad.
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