One of the many things that property managers need to consider is how to handle situations wherein a tenant’s application has been rejected for reasons such as bad credit or a troublesome background check. The requirements for notifying the tenant in these situations are governed by specific Federal law, and they may cover some situations that you wouldn’t expect.

The Fair Credit Reporting Act states that for any adverse action taken based (in whole or in part) on a consumer report, the applicant must receive notice of that fact in writing. Let’s break down these elements:

  • An “adverse action” obviously includes a rejection of the tenant’s application, but it could also be a decision that the applicant must use a co-signer or guarantor to rent the property. A requirement that a tenant pay an increased rent amount or deposit would also be considered an adverse action under the law.
  • The notice must be in writing and include some specific information, including:
    • The name, address, and phone number of the consumer reporting company that supplied the report;
    • A statement letting the applicant know that the company that supplied the report didn’t make the decision to deny the tenant, etc., and also can’t give any specific reasons for that adverse action; and
    • Notice that the applicant can dispute the information the reporting company provided and can get a free report from the company if requested within 60 days.
  • The law also states that this notice is required even if the information in the report was not the primary reason for the decision. So even if you deny the applicant mostly because of prior landlord references, if there was any portion of the consumer report that led to the denial, you still must provide the adverse action notice.

The relevant part of the Fair Credit Reporting Act can be found at 15 U.S..C. 1681m. As always, if you have any questions about how this applies to you, we’re always available through our legal hotline. Happy holidays!