Using Consumer Reports: What Landlords Need to Know
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 Trans
Union, Experian, and Equifax 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 got 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 XYZ TenantScreen as the CRA because XYZ
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/os/statutes/fcrajump.shtm.
The FTC works to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information
to help consumers spot, stop and avoid them. To file a
complaint
or get free
information on consumer issues, visit
ftc.gov or call toll-free,
1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a
new video,
How to File a Complaint, at
ftc.gov/video to learn more.
The FTC enters consumer complaints into the
Consumer Sentinel Network,
a secure online database and investigative tool used by hundreds
of civil and criminal law enforcement agencies in the U.S. and
abroad.
Your Opportunity to Comment
The National Small Business Ombudsman and 10 Regional
Fairness Boards collect comments from small businesses about
federal compliance and enforcement activities. Each year, the
Ombudsman evaluates the conduct of these activities and rates
each agency's responsiveness to small businesses. Small
businesses can comment to the Ombudsman without fear of
reprisal. To comment, call toll-free 1-888-REGFAIR
(1-888-734-3247) or go to
www.sba.gov/ombudsman.
