Tuesday, October 25, 2016

FTC Issues Guidance to Landlords for the Use of Consumer Reports

The FTC has issued a publication that helps landlords understand the proper steps to take when using background checks.  Much like its guidance, Background Checks: What Employers Need to Know, this publication details the obligations of users of consumer reports under the Fair Credit Reporting Act (FCRA). The guidance details what a consumer report is, what is required before the use of a consumer report, and the proper adverse action steps.

The FTC defines a Consumer Report as any information about a person’s credit characteristics, rental history, or criminal history. 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 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.


Before Getting a Consumer Report

The guidance puts an emphasis on permissible purpose. Permissible purpose means that landlords have a legitimate business need that requires a background check. In the case of landlords, they must only use consumer report information for the purpose of screening applicants and/or tenants who apply for rental housing or renew a lease. While written consent is not required from applicants, it is a great way for landlords to prove they have permissible purpose for the use of a consumer report.

The FTC notes that landlords should avoid a blanket policy of refusing to rent to anyone with a criminal history, as it may violate the Fair Housing Act.

Adverse Action

It is important to note that adverse action does not only consist of the denial of an application. Adverse action also includes:

  •          The necessity for a cosigner on a lease if an applicant does not meet the income requirements;
  •         The requirement of a deposit that would not be required for another applicant;
  •         The requirement of a larger deposit than might be require for another applicant; and
  •         Raising the rent to a higher amount than for another applicant.


Whether an employer or a landlord, one thing remains constant. You must provide the applicant notice that you are taking adverse action (any of the measures listed above) and the reasons for the action. While the notice can be given orally, in writing, or electronically, we recommend that the notice is given in writing for auditing purposes. Please note that an adverse action notice is required even if the consumer report wasn’t the primary reason for the decision. If the consumer report played any part in the decision making process, the applicant/tenant must be notified.

The Adverse Action 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.

To view the guidance in full, click here.

Thursday, October 20, 2016

California Assembly Bill 1289: Mandatory Background Checks for TNC Drivers

Assembly Bill 1289, passed on September 28th, has made background checks mandatory for drivers working for a Transportation Network Company (TNC) in California. This bill applies to both employees and independent contractors.

What is a TNC?

TNCs are organizations that connect paying passengers with drivers who provide transportation using their own non-commercial vehicles. All parties connect to the service via website and mobile apps. These are companies like Uber and Lyft.

Background check requirements for TNCs:

  •         A multi-state and multi-jurisdiction criminal records locator or other similar commercial nationwide database with validation; and
  •         A search of the United States Department of Justice (USDOJ) National Sex Offender Public website

A TNC shall not contract with, employ, or retain a driver if he/she meets the following criteria:

  •         Is currently registered on the USDOJ National Sex Offender public website
  •         Has been convicted of a violent felony
  •         Has been in violation of Section 11413, 11418, 11418.5 or 11419 of the Penal Code

A TNC shall not contract with, employ, or retain a driver if he/she has been convicted of any of the following offenses in the last seven years:

  •         Misdemeanor assault or battery
  •         Domestic violence offence
  •         Driving under the influence of alcohol or drugs
  •         A felony violation of Section 18540 of the Elections Code


Assembly Bill 1289 goes into effect on January 1, 2017. We recommend that each Transportation Network Company review their background screening procedure to ensure compliance with the new bill as well as the Fair Credit Reporting Act and other local laws. Each violation of the new law will result in fines between one and five thousand dollars per incident.


To view Assembly Bill 1289 in full, click here