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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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