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.
