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."
Landlords often use consumer reports to help them evaluate rental applications.
These reports may 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.
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.