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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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.