It is now standard practice for landlords to check the financial status and conduct a background check of potential tenants. There are no guarantees a tenant will pay rent on time, but doing a thorough check on a tenant's credit report, banking history, employment and income will help reduce the risk of potential problems in the future.
Credit Reporting Agencies (CRAs) frequently used by landlords to conduct credit checks include:
FREQUENTLY ASKED QUESTIONS
Q. Even though a potential tenant has not authorized it, I pulled a credit report on him or her. Is this legal?
A. Yes, under the Fair Credit Reporting Act (FCRA), a credit report can be seen "in connection with a business transaction initiated by the consumer." This means a potential tenant has begun a transaction in the process of renting an apartment, and you have the right to use a CRA to examine a potential tenant's credit. You would be violating the FCRA if the apartment were not available for rent. Call 877.FTC.HELP or visit www.ftc.gov for more information about the FCRA.
Q. An existing tenant's apartment lease is up for renewal. Can I check his or her credit history without permission?
A. Yes. Because the tenant is currently living in one of your apartments, the FCRA considers the tenant to be in a business transaction. You can also pull a credit report on a tenant who is routinely late with rent, damages the apartment to such a degree that would cost more to fix than the security deposit or who has moved out with time left on the lease.
Q. What is an Adverse Action Notice?
A. An adverse action notice is a document explaining the reason(s) why a credit application has been denied. When an adverse action is taken, it is based solely or partly on information in a consumer report. The Fair Credit Reporting Act requires landlords to provide a notice of the adverse action to the consumer that includes:
- the name, address and telephone number of the Credit Reporting Agency that supplied the consumer report, including a toll-free telephone number for agencies that maintain files nationwide;
- a statement stating the Credit Reporting Agency that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and
- a notice of the individual's right to dispute the accuracy or completeness of any information the Credit Reporting Agency furnished, and the consumer's right to a free report from the agency upon request within 60 days.
Q. After pulling a credit report and checking with a potential tenant's previous landlords, I denied the application because of rental history. Is the potential tenant entitled to an Adverse Action Notice?
A. Yes. Even though the applicant's credit history was not the main issue in not renting him or her your unit, since it was part of what you examined in deciding whether to approve the application, you must provide a notice.
Q. If my property manager uses a CRA to verify rental applications, am I, as the landlord, still responsible for notifying applicants of an adverse action?
A. Yes. You must comply with the FCRA even if you did not view the credit report. If your property manager did not use a CRA, you are not required to provide an Adverse Action Notice.
Q. Can an applicant I refused to rent to and to whom I did not give an Adverse Action Notice sue me?
A. Yes, if you used a CRA to make your decision to refuse the application. The FCRA allows the applicant to sue you in federal court for compensatory damages, punitive damages (if the violations are deliberate) and attorney's fees. If you made a simple mistake and routinely send out Adverse Action Notices, you are not liable to the applicant.
Q. An applicant's employer will not give out salary information over the phone. What can the applicant do to show me that he or she is employed?
A. Ask the applicant to provide you a copy of his or her most recent paycheck stub. If the applicant's company will provide him or her with a letter stating the salary and length of employment, ask for a copy to be mailed or faxed to you.
Q. Can I perform a background check without any authorization?
A. Yes, but only to the extent the information is public and available. For example, anyone can check court records to determine if a potential tenant has been convicted of a crime or involved in a civil lawsuit, such as divorce or bankruptcy.
