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It’s understandable how a landlord could be interested in understanding as much information as possible about a potential tenant, but landlords must be aware of FTC regulations recently released this past summer. We provide business owners around the country with pre-employment background checks  to help make better hiring decisions. Today we want to speak to landlords and property managers, who we also help to provide background checks for. It could be argued that a landlord needs a deeper understanding of an applicant than an employer, considering the individual will be living on the premises. 

Let’s take a few minutes to talk about Tenant Background Checks.

Tenant Background Checks & the FCRA

Tenant background checks can demonstrate important information to help evaluate whether or not an individual is a good candidate to be a tenant, or to to renew a tenants lease. What property owners need to know however is there are mandated regulations that require them to take action in the event that information on a background check was used to make a decision.

Such background checks can reveal information like eviction history or credit records or criminal history. 

When landlords use these reports to make a decision, they must provide evidence of the adverse action back to the applicant. Landlords also need to know that depending on their state, they could be in violation of the Fair Housing Act if they refuse to rent to anyone with a criminal record. Prior to accessing consumer reports, landlords must also get written consent from an applicant.

What is an Adverse Action?

Essentially an adverse action by definition is any decision that doesn’t exactly favor the applicant and/or tenant. This could be something as simple as denying the application, but also could be things like requiring a higher security deposit, requiring a co-signer, or charging higher rent than anticipated. It’s safe to say that if any action is taken based on information compiled in a consumer report other than accepting the application, it’s considered an “adverse action.”

According to the FTC, even if the information provided in the consumer report wasn’t the primary reason for the decision, adverse action notice is required. Any role, any influence that the report played on a decision must be notified to the applicant or tenant. 

What Adverse Action Notification Requires

If an adverse action is taken, the individual must be notified with the following information, in writing, orally, or electronically. It’s recommended to provide notification in writing to ensure proof of compliance with the FCRA. 

An Adverse Action Notice must include

  • The name, address, and phone number of the CRA that supplied the report;
  • A statement that the CRA 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 CRA furnishes, and to get a free report from the CRA if the person asks for it within 60 days.

FCRA Has Additional Rules for Investigative Reporting

Reporting based on personal interviews concerning someone’s character, reputation, characteristics, and/or lifestyle require additional obligations for landlords. These obligations include but are not limited to “providing written notice that you may request, or have requested an investigative consumer report and giving a statement that the person has a right to request additional disclosures and a summary of the scope and substance of the report.” You can read more about this right on FTC.gov.

Bottom line, if you’re a landlord you must comply with the FCRA or you could end up in hot water. If you are a landlord or property manager, your background check partner should be able to help you understand these factors. If you have any questions about tenant background checks or your current system for checking potential tenants, please don’t hesitate to reach out. We take pride in helping to educate and ensure our clients are compliant!