What Landlords Need to Know About Tenant Background Checks and the Law

Posted by Teresa on May 7, 2010 under Tenant Credit Checks, Tenant Screening & Background Checks | Be the First to Comment

The Fair Credit Reporting Act (FCRA) established rules to protect privacy and guarantee report accuracy when businesses, banks, and rental property owners check consumers’ credit histories. Landlords are allowed to obtain tenant credit reports as long as they follow the FCRA’s provisions.

Specifically, when landlords obtain information about a potential tenant’s credit history, rental history, previous evictions or a variety of other pertinent personal information, and they use that information to determine what they require from the tenant, they must give the tenant an “adverse action notice.”

For example, a low credit score might mean the landlord requires a co-signer on a lease application. Or, a previous eviction may mean the tenant’s application is denied altogether. Even requiring a higher rent deposit is considered an “adverse action,” if it is based on information obtained in a consumer credit report. And really, if a landlord requires a higher deposit from Tenant B than from Tenant C, the only grounds he or she could base that decision on would be a tenant credit report—or else a discrimination claim under the Fair Housing Act could be in that landlord’s future.

When a landlord takes adverse action against a tenant applicant, the FCRA requires a notice to be supplied to the tenant. The notice must include:

• the name, address and telephone number of the Consumer Reporting Agency (CRA) from which the report was obtained;
• a statement that the CRA did not make and cannot specify the reasons for the adverse decision;
• a notice of the tenant’s right to dispute the accuracy of the information the CRA supplied;
• notice of the tenant’s right to a free credit report upon request from the CRA within 60 days.

The adverse action notice can be given verbally; however, a written notice is advised, since the landlord would then have proof of giving the notice to the tenant.

Even if the CRA is checking information that has nothing to do with the tenant’s credit, such as verifying tenant employment or income—an adverse action notice is required if that information is the basis of a denied application, higher security deposit, or other action required by the landlord.

There are serious legal ramifications for landlords who fail to supply notices required by the FCRA. Check with your attorney if your procedures are called into question, but in the meantime, educate yourself about your responsibilities under the law.

The Fair Credit Reporting Act is available online, so it’s easy to familiarize yourself with its provisions and updated requirements. And updates are done frequently, so it’s up to every rental property owner to stay informed on a regular basis.