When something unfavorable is returned on your tenant’s background report, what do you do?
If information from a background report influences your decision in a way that is negative or unfavorable to the tenant, landlords must follow the Adverse Action process per the FCRA and any applicable local laws.
This is true when the decision is based all or in part on the results of the background report.
What is considered Adverse Action for tenant screening?
Residential tenant screening reports have become the norm among landlords and property managers:
- Credit reports can indicate ability to fulfill obligations of the lease.
- A clear criminal record can help protect other tenants and the property.
- Stable employment with sufficient income suggests rent will be paid.
- Rental History verifications reveal first-hand insight.
Any action that varies from how you would normally proceed with another applicant or tenant is considered “adverse action.” Even if you rent your property under modified conditions, you are still taking adverse action.
This could include:
- Denying tenancy to an applicant
- Modifying the lease term or monthly rent amount
- Requiring a deposit that is not otherwise required
- Adjusting the deposit amount
- Requiring a co-signer on the lease
Taking Adverse Action according to the FCRA
It is important to establish proof that you were compliant with the FCRA by sending an adverse action letter. This letter should advise:
- The name, address and toll free number for the Consumer Reporting Agency (CRA)
- That the CRA who supplied the background report did not make the decision to take adverse action, nor can the CRA provide specific reasons for the action
- The applicant’s right to receive a copy of the background report upon request, either from you or from the CRA
- The applicant has the right to dispute anything found to be inaccurate
Some landlords take this a step further by providing a copy of the report along with the adverse action letter. In doing so, the tenant can readily identify inaccuracies and submit a dispute with the CRA. And, the applicant cannot say they were denied a copy of the report.
Additional legislation and guidance for tenant screening
Beyond the FCRA, additional legislation and guidance for tenant background checks is vast. As this is just the tip of the iceberg, it cannot be emphasized enough that a bit of research and a conversation with your legal counsel could be worth every moment spent. Especially if an oversight is revealed!
In 2011, the Dodd-Frank Act amended Section 615(a) of the FCRA to require additional disclosures when a credit score is used in a background check. Read more about the Dodd-Frank, the FACT Act, FCRA requirements here.
State laws and local ordinances may require additional disclosures, such as an explanation for the denial/change of terms. Be certain you comply with all.
In April 2016, the U.S. Department of Housing and Urban Development (HUD) released guidance on the use of criminal records for tenant background screening, similar to the EEOC’s Individualized Assessment for employment background screening. Read the guidance here.
Maintain compliance when taking adverse action
Even if the background check only was a minor influence in your decision, you must still follow the adverse action process. Landlords lacking in compliance are vulnerable to penalties and civil action.
Lastly, a clearly written policy that pays special attention to consistency and making objective decisions may help avoid inadvertent discrimination and compliance violations. Ensure your policy and practices adhere to all federal and local legislation by working with an attorney experienced with the FCRA, tenant background screening and fair housing laws for all legal advice.
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