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. Click on
Business Guidance.
Your Opportunity to
Comment
The Small Business and Agriculture Regulatory
Enforcement Ombudsman and 10 Regional Fairness Boards collect comments from
small business about federal enforcement actions. Each year, the Ombudsman
evaluates enforcement activities and rates each agency's responsiveness to
small business. To comment on FTC actions, call toll-free 1-888-734-3247.
The FTC works for the consumer 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 to get free information
on consumer issues, visit
www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
complaints into
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
|
FEDERAL TRADE COMMISSION |
FOR THE CONSUMER |
1-877-FTC-HELP |
www.ftc.gov |
|
December
2001 |