​Are you a landlord? The FCRA applies to you, too!

As all successful landlords can tell you, a tenant screening process is a must to ensure the liability assumed when leasing a property is lessened. But what tools are available to evaluate rental applications?                                    

Tools you can use

Under the Fair Credit Reporting Act (FCRA), landlords may use consumer reports, but have to follow the provisions provided to protect the privacy of their applicants. The tools a landlord uses to gauge if an applicant is a suitable match for their property is called consumer reports. Typically, a consumer report provides information such a person’s credit characteristics, rental history that may be provided by previous landlords, or is derived from public records. A key component in using these types of reports according to the FCRA, is they must be prepared by a consumer reporting agency (CRA); or a business that packages them for other businesses. An example of a CRA is a credit bureau, or a tenant screening service. Another tool landlords have at their disposal is the verification of references provided by the applicants. An often unknown rule states that verification of references is only covered by the FCRA when they are completed by an agency hired by the landlord; not if completed by a landlord’s employee.

What is adverse action?

Under the FCRA, using consumer reports to make a decision to deny a lease is allowable, but it requires landlords provide the applicant with an adverse action notice. A reputable tenant screening service will be able to provide the required notice for landlords use; along with required disclosure and release forms needed to order consumer reports.

What is considered adverse action? Essentially, adverse action is any unfavorable action towards a rental applicant that is conducted by the landlord. Examples of adverse actions that are often conducted 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
• Raising the rent to a higher amount than for another applicant

Now back to the requirements for landlords under the FCRA; if adverse action is taken due to information found in a consumer report, a notice must be provided to the applicant. 

Per the Federal Trade Commission, who is charged with enforcing the FCRA,

“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”

Landlords can provide oral adverse action notices, but written notices provide proof of FCRA compliance.

Failure to comply with the FCRA

Non-compliance with the requirements listed under the FCRA could lead to severe legal consequences for landlords. Individuals are allowed to sue for damages in federal court; seek punitive damage for deliberate violations; the FTC and other state and federal agencies may also sue for non-compliance.

As stated above, landlords have an abundance of tools at their disposal to screen tenants, but it is highly recommended that a reputable CRA is used to provide consumer reports, and conduct reference verification's on your behalf.