When landlords and property managers receive rental applications, they often use consumer reporting agencies to screen applicants before making a decision. However, when an applicant is denied or accepted with additional terms based on the contents of their report, the Fair Credit Reporting Act (FCRA) requires landlords to provide an Adverse Action Notice. This notice provides the applicant with information about why they were denied or accepted with additional terms, and it also outlines their rights to review their credit report and dispute any inaccuracies. In this article, we will discuss the important details that landlords and property managers should know about Adverse Action Notices.
What is An Adverse Action Notice?
Under federal law, a landlord must provide an Adverse Action Notice when a rental applicant is denied based on their tenant screening report, including both denials and approvals with additional terms due to higher risk. This letter, mandated by the Fair Credit Reporting Act (FCRA), informs the applicant that they are being denied or conditionally accepted for residence based on the contents of their credit report or background check. Landlords must provide this letter to any applicant on whom they have run a consumer report and intend to deny or alter the lease agreement terms to accept as a tenant.
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Screening potential tenants is a crucial step in the rental process, but it can also be time-consuming and stressful for landlords. That’s where ScreenRenters comes in. With our service, landlords can easily screen potential tenants and receive a comprehensive tenant screening report, including credit history, criminal background, and eviction records. And if an applicant is rejected, ScreenRenters will automatically generate and send an adverse action letter, ensuring that landlords stay compliant with federal laws and avoid potential penalties. By using ScreenRenters, landlords can streamline the rental process and have peace of mind knowing they have access to reliable and efficient tenant screening services.
When Does a Landlord Need to Issue an Adverse Action Notice?
The Adverse Action Notice is required not only for applicants who are denied tenancy, but also for those who are accepted with additional conditions that are not imposed on other applicants. Some examples that may require an Adverse Action Notice include turning down an applicant for the rental, charging a higher deposit based on screening results, or requiring a co-signer due to screening findings. Whenever a landlord requires something of an applicant that they do not require of others who meet their usual standards, an Adverse Action Notice must be provided to explain why. In most cases, the applicant can obtain a copy of their credit report from the credit agency that provided the report, and the notice will include contact information to facilitate this process.
What to Include:
When sending an Adverse Action Notice, it’s crucial to include specific information to ensure that applicants understand why their application was denied. Here are the essential pieces of information you should include:
- Start by listing your contact information and the applicant’s name and contact details.
- Inform the applicant that their application has been denied.
- Provide specific information about why their application was denied, including:
- The name of the consumer reporting agency that provided the report
- The contact details of the reporting agency
- A release of liability from the reporting agency
- This information helps the applicant understand the type of information reported about them and where it came from.
- Inform the applicant that they have a right to receive a copy of the same report you received if they contact the reporting agency within 60 days.
- This allows the applicant to verify the accuracy of the information provided.
- By providing all of this information, the applicant can follow up on any confusing reports and take steps to address inaccuracies.
Consequences for Landlords Not Sending a Notice
The potential penalties for landlords who do not provide an adverse action letter, or if the letter is incomplete, can vary depending on the jurisdiction and specific circumstances. However, generally, landlords may face legal consequences and penalties that include:
- Civil penalties: Landlords may be required to pay a fine or penalty for violating the law, which can range from hundreds to thousands of dollars.
- Lawsuits: Tenants may take legal action against landlords for violating their rights under the Fair Credit Reporting Act (FCRA) or other state or federal laws. This can result in costly legal fees and damages awarded to the tenant.
- Damage to reputation: Failure to provide an adverse action letter or providing an incomplete letter can damage a landlord’s reputation in the community and lead to negative reviews or loss of business.
- Loss of rental income: If a landlord is found to be in violation of the law, they may be required to compensate the tenant or lose out on potential rental income.
Sample Adverse Action Letter:
[Your Name]
[Your Address]
[City, State ZIP Code]
[Date]
[Applicant’s Name]
[Applicant’s Address]
[City, State ZIP Code]
Re: Adverse Action Notice
Dear [Applicant’s Name],
Thank you for your interest in renting the property located at [Property Address]. We appreciate the time and effort you have taken to complete the rental application process. Unfortunately, we must inform you that we cannot approve your rental application at this time.
The decision to decline your application is based on information obtained from a consumer report, which was prepared by [Consumer Reporting Agency]. The consumer report revealed [reason(s) for denial], which makes us unable to accept your application.
As required by the Fair Credit Reporting Act, you have the right to dispute the accuracy or completeness of any information contained in the consumer report provided by [Consumer Reporting Agency]. The [Consumer Reporting Agency]’s contact information is as follows:
[Consumer Reporting Agency]
[Address]
[City, State ZIP Code]
[Phone Number]
Additionally, as required by law, you are entitled to receive a free copy of your consumer report within 60 days of this notice. If you wish to obtain a copy of your consumer report, please contact the [Consumer Reporting Agency] directly.
We regret to have to take this action, and we wish you the best in your future rental endeavors.
Sincerely,
[Your Name]
