Tenant Screening Rules for Apartment Owners: FCRA Adverse Action Notices and Written Criteria
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When an apartment owner, or the property manager acting for it, uses a tenant screening report to deny an application or to approve it only on worse terms, the Fair Credit Reporting Act requires an adverse action notice. Under 15 U.S.C. 1681m(a), the notice must tell the applicant about the adverse action; disclose any numerical credit score used, with the related score information; give the name, address and phone number of the consumer reporting agency that supplied the report; state that the agency did not make the decision and cannot explain it; and tell the applicant of their right to a free copy of the report within 60 days and to dispute its accuracy. Screening should follow written criteria applied the same way to every applicant, and state and local laws can limit what you may consider. For a syndication, these are operating duties the property manager carries out for the deal company, but the owner remains on the hook.
This guide covers the federal notice, consistent criteria, state and local limits and record handling. It fits with choosing a property management company.
When is a notice required?
Any time you take adverse action "based in whole or in part" on information in a consumer report. A tenant screening report, a credit report and an eviction or criminal history report from a screening company are all consumer reports. Common adverse actions:
- Denying the application.
- Approving it only with a higher security deposit, a co-signer or guarantor, or higher rent.
- Approving a shorter lease or different unit because of the report.
What must the notice say?
- That you took adverse action (orally, in writing or electronically; written is the safer record).
- Any numerical credit score you used, with the key factors and score range information the law requires.
- The name, address and phone number of the screening company that supplied the report.
- A statement that the screening company did not make the decision and cannot tell the applicant why it was made.
- The applicant's right to a free copy of the report from that company within 60 days, and to dispute inaccurate or incomplete information.
Most screening companies provide a compliant template. Make sure the property manager uses it every time and keeps a copy.
Written criteria and fair housing
Write down the screening criteria (income ratio, credit, rental history, eviction history, criminal history where allowed, occupancy limits) and apply them the same way to every applicant. Inconsistent decisions are where fair housing claims start. Review the criteria with a fair housing attorney, especially criminal history and income rules, because policies that screen out protected groups without a legitimate reason can be challenged.
State and local limits
Rules vary widely. Examples of what states and cities regulate:
- Criminal history: some limit what records may be considered, how far back, or when in the process.
- Eviction records: some restrict use of sealed or old records.
- Source of income: many prohibit refusing applicants because they pay with a housing voucher or other lawful income.
- Application fees: some cap fees or require a refund if no report is run.
Check the property's state and city before you adopt the manager's standard criteria.
Handling reports
Consumer reports contain sensitive personal information. Under the FTC's disposal rule, anyone who uses consumer reports must take reasonable measures to dispose of that information securely. Limit who can see reports, keep them out of email where possible, and set a retention period with your property manager.
Related guides: 55+ apartments, Fair Housing accessibility and Security deposits.
How DoorRaise fits in
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FAQ
Who sends the adverse action notice, the owner or the property manager?
Usually the property manager, as the owner's agent, sends it. The owner should require it in the management agreement and spot-check that it happens.
Do I need a notice if I deny an applicant for reasons not in the report?
The FCRA notice duty is triggered by adverse action based in whole or in part on a consumer report. If the report played any part, send it.
Can I charge an application fee for screening?
Often yes, but some states and cities cap or regulate application fees. Check local law.
Does the FCRA apply to small landlords?
Yes. The adverse action duty applies to any person who takes adverse action based on a consumer report, regardless of size.
Next step: see what else to ask a property manager in property manager questions.
Sources
- 15 U.S.C. 1681m, requirements on users of consumer reports
- 16 CFR Part 682, disposal of consumer report information and records
- 15 U.S.C. 1681j, free annual and adverse action disclosures
This article is general information, not legal advice. Tenant screening law varies by state and city. Talk to a fair housing attorney about your criteria. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.