Mom-and-pop and other small-time landlords sometimes turn to credit reports, tenant screening agencies and reference screening services to evaluate would-be occupants. But what many don't realize is that when they try to emulate the major apartment owners who do this on a regular and recurring basis, they have to play by the same rules.

One is the Fair Credit Reporting Act, which is designed to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is accurate.

Under FCRA, landlords both big and small who deny occupancy based solely or partly on information in the applicant's consumer report must give the rejected tenant an "adverse action notice." Failure to comply could result in a law suit. The law allows individuals to seek punitive damages.

Owners who inadvertently fail to provide the required notice in an isolated case have legal protections, as long as he can show that they "maintained reasonable procedures to assure compliance" at the time of the violation. Absent that, though, and even the Federal Trade Commission, other federal agencies and your state can sue for non-compliance and recover civil penalties.

According to the FTC, the consumer watchdog agency responsible for administering FCRA, an adverse action is more than just denying a rental application. It's also when the landlord requires a co-signer on the lease, demands a larger security deposit than required of other applicants, or rents the property at a rate that's greater than it would be for someone else to compensate for the greater perceived risk.

Actually, any action that is unfavorable to the interests of the rental applicant is considered an adverse action. So even if information in the report leads you to investigate the applicant more thoroughly then you would someone else, the Fair Credit Reporting Act kicks in.

In these cases, the landlord/owner must provide the name, address and phone number, including the toll-free number, of the agency that provided the report on which adverse action is based. Even if the information in the report is not the main reason for your decision, even if it plays only a small part in your judgment, the applicant must still be notified.

Landlords frequently ask applicants to provide personal, employment and previous landlord references. But whether verifying them is covered by FCRA or not depends on who does the checking. If it's you or an employee, you're not covered. But if it's done by an outside agency hired by you, it is.

Why all this? Because the information contained in the report could be erroneous.

Typically, reports from credit and screening agencies contain information about a person's credit characteristics, character, general reputation and lifestyle, rental history, and information from previous landlords or the public records about evictions or other landlord-tenant cases. Consequently, the report could be filled with exaggerations or even downright lies from an embittered landlord who once lost a dispute with the tenant in question. Or it may not even be the same guy. Perhaps his is a common name and he's somehow been mis-identified.

The potential tenant must also be told that they have a right to dispute the accuracy or completeness of the information in the report, and that they have the right to a free report from the agency upon request within 60 days.

And remember this: While oral adverse action notices are permissible, written notices are proof of compliance with the law.

For more articles by Lew Sichelman, please press here.

Published: February 6, 2002

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