Consumer Reports and Adverse Action Notices for Landlords doing Tenant Screeing
Consumer Reports and Adverse Action Notices
For tenant screening purposes, landlords may collect information from a variety of data sources including applicant supplied information, verifications, reference checking, and screening reports ordered through outside service companies. The collected information is analyzed to produce a profile of applicant behaviors in areas of interest to most landlords, namely, income/employment records, credit history, rental housing history, criminal conviction history and public records. Using a decision matrix the landlord advances or rejects the applicant on the basis of the applicant’s screening results compared to the landlord’s pre-determined minimum qualification standards.
When using consumer reports to evaluate applicants, landlords must comply with all requirements under the provisions of the Fair Credit Reporting Act (FCRA). A consumer report contains information about an individual’s credit, character, general reputation, and lifestyle. Consumer reports include:
- credit reports from a credit bureau, such as Transunion, Experian, and Equifax or an affiliate company,
- reports from a tenant screening service that describe the applicant’s rental history based on reports from previous landlords or housing court records,
- reports from a tenant screening service that describe the applicant’s rental history and also include a credit report the service got from a credit bureau,
- reports from a tenant screening service that is limited to a credit report the service got from a credit bureau; and
- reports from a reference checking service that contains previous landlords or other parties listed on the rental application on behalf of the rental property owner.
The FCRA was enacted to promote accuracy, privacy, and fairness of consumer information as collected by consumer reporting agencies. Subsequent amendments included disclosure requirements for users of consumer credit reports in rental decisions, specifically adverse action notification. Next, the Fair and Accurate Credit Transactions Act (FACT Act) addressed issues of identity theft and gave additional protections to consumers regarding their credit standing. The most
recent change to FCRA requirements was the passage in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank amends Section 615(a) of the FCRA to require the disclosure of the credit score when adverse action is based in whole or in part on a numerical credit score contained in a consumer credit report.
As a review from our previously published article regarding “adverse action,” Section 615(a) of the FCRA requires landlords, when they take an “adverse action” against a rental applicant based in any way on a “consumer report” from a “consumer reporting agency.” to provide an adverse action notice to that consumer. The law requires landlords to provide rental applicants with a notice that informs them of the adverse action, identifies the consumer reporting agency that provided the report that contributed to the landlord’s action, and specifies the consumer’s rights under the FCRA.
An adverse action is any action by a landlord that is unfavorable to the interests of a rental applicant. It includes not only a landlord’s denial of a rental application but also an action by the landlord that imposes a burden not required of all tenants. Common adverse actions by landlords include:
- denying a rental application,
- requiring a co-signer or guarantor on the lease,
- requiring a higher security deposit (that would not be required for another applicant), and
- requiring an increased rent amount (that would not be required for another applicant).
The landlord must provide the notice if the adverse action in any way is based on a consumer report that played a factor in the landlord’s action, even though the action is based primarily on an applicant’s income or prior reputation as a tenant. In fact, even if the information in the report plays only a small part in the overall decision, the applicant must be notified. This means that the landlord must usually send a notice if you hire a tenant screening company or even if just looking at a credit report. Disclosure of this information is important because some consumer reports contain errors. By being made aware of the information contained in the report, the applicant can take steps to correct errors.
The Notice of Denial Based on Credit Report or Other Information sent to the applicant advises them of rights under the Fair Credit Reporting Act and Fair and Accurate Credit Transactions (FACT) Act of 2003, (15 U.S.C. §§ 1681 and following. The notice must include:
- the name, address and telephone of the credit reporting agency that supplied the consumer report including a toll-free telephone number for credit reporting agencies that maintain files nationwide,
- a statement that the credit reporting 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 credit reporting agency furnished, and the consumer’s right to a free report from that agency upon request within 60 days.
The Dodd-Frank amendment now (effective 2011) requires additional disclosure information if the denial was based upon the consumer credit score. The additional information includes:
- the applicant’s credit score (the credit score found on the credit report),
- the name of the entity that created the credit report (e.g. Experian, Transunion),
- the date of the credit report,
- the range of possible scores within the model used for the report (Experian credit score range 300-900), (Transunion credit score range 350-900),
- the key factor(s) – not exceeding four – that affected the credit score ( key factors may be found on the applicant’s credit report), and
- a statement that a credit score is a number that takes into account information in a consumer report and a credit score can change over time to reflect changes in the consumer’s credit history.
The adverse action disclosure may be made in oral, written, or electronic form.
A credit score as reported by a credit reporting agency is not the same as a risk score as supplied by some tenant screening companies. Questions regarding screening information or scoring models should be directed to the tenant screening service company that provided the report.
Landlords who fail to provide required disclosure notices potentially 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 may have legal protections if he can demonstrate “that at the time of the violation he maintained reasonable
procedures to assure compliance” with the FCRA.
The above discussion relates only to federal law. As for many property management issues, landlords must also understand and comply with more restrictive consumer credit laws that may exist under state laws.