The following article is from the Federal Trade Commission’s guidance on Using Consumer Reports: What Landlords Need to Know.
Landlords and property managers are legally allowed to review a rental applicant’s consumer reports and run a background check to determine if he or she will be a qualified tenant.
Housing providers will use a variety of information from these tenant screening reports, including rental and eviction history, credit, or criminal records.
When accessing consumer reports to make tenant decisions, landlords and property managers must comply with the Fair Credit Reporting Act (FCRA). The Federal Trade Commision (FTC) enforces the FCRA.
What is a Consumer Report?
According to the FCRA, a consumer report contains information about a person’s credit, rental history, or criminal history. Consumer reports are prepared by a credit reporting agency. Credit reporting agencies are businesses that assemble consumer reports for other businesses.
Examples of consumer reports:
- 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 reference checking service that contacts previous landlords or other parties listed on the rental application on behalf of the rental property owner; and
- A report from a background check company about an applicant or tenant’s criminal history.
Conditions To Access Consumer Reports
Landlords and housing providers must take certain steps before accessing a consumer report.
Not everyone is legally allowed to access a consumer report. Landlords and housing providers are one of the few industries in which access to consumer reports is allowed, but it is only permissible for tenant screening purposes.
Before accessing a consumer report for tenant screening, a landlord must:
- Only access a report from a current tenant or rental applicant who is applying to rent housing or renew a lease
- Get permission from the tenant or rental applicant to obtain consumer reports, typically via written permission in a rental application.
- Certify to the company from which you are getting the consumer report that you will only use the report for housing purposes. You may not use the consumer report for another purpose. This is typically accomplished via agreed to terms of service when signing up with a tenant screening service or credit reporting agency.
- Complete a credit access approval process with a credit reporting agency, if attempting to access credit reports for tenant screening.
If a landlord or property manager takes any action that is considered unfavorable towards the tenant or rental applicant based on information found in a consumer report, it is considered an Adverse Action. If a housing provider makes an adverse action they must notify the applicant or tenant with an Adverse Action Notice.
According to the FTC, common examples of adverse action 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
Adverse Action Notice
An adverse action notice tells people about their rights to see information being reported about them and to correct inaccurate information. The notice must include:
- the name, address, and phone number of the consumer reporting company that supplied the report;
- a statement that the company that supplied the report did not make the decision to take the unfavorable action and can’t give specific reasons for it; and
- a notice of the person’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get a free report from the company if the person asks for it within 60 days.
The adverse action notice is required even if information in the consumer report wasn’t the primary reason for the decision. Even if the information in the report played only a small part in the overall decision, the applicant or tenant must be notified.
While oral adverse action notices are allowed, written notices provide proof of FCRA compliance.
The FTC offers examples of when an Adverse Action Notice would be required.
Where to get a tenant’s credit report?
There are three major credit bureaus that produce credit reports:
Credit bureaus do not provide consumer reports directly to landlords or property managers, instead you need to work through a credit reporting agency or tenant screening service. The credit reporting agency or tenant screening service will identify which major credit bureau they work with to provide tenant credit information.
How do I find a credit reporting agency or tenant screening service?
A simple internet search for “tenant screening” will reveal several online services available for property managers and landlords to perform tenant credit checks online. You should look for an agency or service that has an established reputation, works with a major credit bureau, and provides you with sample reports that are clear and informative.
Why do I have to apply for access to order a tenant credit report?
Due to the extremely personal nature of the information contained in a credit report, the Fair Credit Reporting Act (FCRA) established guidelines that limits who has access to a person’s credit report. For this reason, all credit reporting agencies and tenant screening services require you to submit a credit access application to establish the legitimacy of your need to obtain consumer credit information.
Landlords and property managers are approved by FCRA regulations to legally review a tenant’s credit report (with consent) for the sole intention of determining an applicant’s qualification to rent. When setting up an account with a credit reporting agency, a landlord and property manager will submit a simple credit access application and supporting documentation that proves their need for access.
An application for credit report access is typically an extremely simple process for landlords and property managers that takes less than 30 mins to complete. You will read through and consent to your credit reporting agency’s terms and conditions, agree to the credit bureaus terms, and gather supporting documentation like:
- A completed and signed rental application (from a past or prospective tenant)
- Proof of property ownership of a rental property if you’re a landlord (like a mortgage or property tax statement)
- OR A copy of a business or real estate license and a copy of a completed property management agreement if your a property manager
Disposing of Consumer Reports
The FTC requires that you securely dispose of any consumer report and the information you gathered from it when you’re doing using it. Secure disposal can include burning, pulverizing, or shredding paper documents and disposing of electronic information so that it can’t be read or reconstructed.
The Rule requires the proper disposal of information in consumer reports and records to protect against “unauthorized access to or use of the information.”