Are you complying with the Fair Credit Reporting Act?

Prudent property managers screen potential tenants by making use of a rental application and obtaining a credit report.  Most property managers are aware that Fair Housing Laws require that a refusal to deny rent must be based upon nondiscriminatory reasons.

A poor credit score is certainly a legitimate reason, however, if a credit score is the reason for an adverse decision to rent, the property manager must be aware of further obligations under the law.

Under the Fair Credit Reporting Act, a property manager or landlord must provide a written or electronic notification to the potential tenant whenever a refusal to rent is based upon a credit score. An “adverse action” based upon a credit score is broader than just a refusal to rent.  It also includes:

• Requiring a co-signer or guarantor on the lease
• Requiring a deposit which might not be required from any other applicant
• Requiring a bigger deposit as compared to another tenant
• Raising the rent to a greater amount

Amendments in 2011 to the Fair Credit Reporting Act require that all of the following information must be in the disclosure when the adverse action was based on or in part of a credit score:

• The numerical credit score;
• The range of possible credit scores under the model used;
• All of the key factors that adversely affected the credit score of the consumer in the model used, the total number of which shall not exceed four (4);
• The date on which the credit score was created; and
• The name of the person or entity that provided the credit score or credit file upon which the credit score was created.

The credit score disclosure requirements are not applicable when a landlord’s adverse decision is based on information in an applicant’s consumer report other than the credit score.  In such cases, the landlord must notify the prospective tenant that the adverse decision was based upon a credit report and:

• Provide the prospective tenant with the name, address and telephone number of the consumer reporting agency that provided the credit report;
• Inform the prospective tenant that the reporting agency did not make the adverse decision, nor can it provide reasons as to why the adverse action was taken;
• Provide the prospective tenant with notice of his/her rights to obtain a copy of the credit report, and to dispute with the consumer reporting agency any inaccuracies in the investigative report.

Violations of the Fair Credit Act can lead to civil penalties against the landlord and/or property manager. These may include actual damages or nominal damages of up to one thousand dollars if no actual damages exist. In the case of willful noncompliance, attorney fees and punitive damages may be imposed.