Landlords and their agents need to be aware of how they may be affected by new requirements imposed upon them by the Fair Credit Reporting Act (FCRA). This is because the FCRA has been amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank was signed into law by President Obama in July of 2010. Although less attention was paid to it than was paid to the administration’s comprehensive health-care act, they had this in common: we needed to pass them to find out what was in them.
What we have found out, in this instance, is that landlords who take “adverse action” regarding a tenant application will have to provide specified information if that adverse action is based upon the applicant’s credit score.
What might adverse action be? At least one of the following:
- denying the lease/rental application
- requiring a co-signer
- requiring a higher security deposit
- requiring an increased rent amount
If such an action is taken, based on the applicant’s credit score, then the following information must be provided to the applicant:
- the credit score
- the entity that created the credit report
- the date of the credit report
- the range of possible scores within the model used
- the key factors, not exceeding four, that affected the credit score
If one of the factors is the number of credit inquiries made, then that can be listed as an additional factor.
Number 5 might pose a problem for some landlords. It is not clear that they are always going to know what the key factors were that affected the credit score. It may require that the landlord will have an ability to interpret the report, not just read the score. Sure, most landlords are going to be able to spot negatives, but they may not know what weight has been assigned to those negatives. Some landlords just want to know the score. That’s enough for them.
This kind of disclosure will not be entirely new to California landlords and their agents. Since 2005 they have been required to make disclosure to tenant applicants if their adverse action was based on a credit report. However, the California requirements had more to do with informing the applicant about the availability of credit reports and the right to dispute them than it had to do with the content of the reports. The new federal requirements are much more report-specific.
These new requirements have been in effect since July 21, 2011. Presumably, enforcement will come under the jurisdiction of the new Consumer Financial Protection Agency, about which we also have more to learn.
It should be emphasized that the new requirement comes into play only if the adverse action is based on the credit report. No such disclosure is required if it is based on other considerations.