The Adverse Action Process - Are You In Compliance?

You have a great rental property and are looking for a new tenant. You requested a background check on a prospective renter but they don’t meet your rental criteria.  Now that you’ve made the decision to deny a rental application, do you know what your obligations are when communicating that decision to the applicant?

Landlords who obtain consumer reports on potential renters are required to comply with the Fair Credit Reporting Act (FCRA).  Part of the FCRA requires landlords to provide notice if an adverse action is taken against an applicant when using consumer reports to make a rental decision.

What is an adverse action?

The Federal Trade Commission (FTC) defines an adverse action as “any action by a landlord that is unfavorable to the interests of a rental applicant or tenant.”[1]

Adverse actions don’t just occur when an applicant is denied. Anytime you accept an applicant with conditions, you are required to notify the applicant of adverse action. Some examples of rental related adverse actions can include requesting an additional deposit (beyond the standard deposit), requiring a cosigner to guarantee the lease, or denying the application altogether.

What is a consumer report?

A consumer report is a broad term used to describe reports containing background information about an applicant. Consumer reporting agencies (CRAs) prepare consumer reports and must follow FCRA guidelines.  Landlords may request a consumer report before deciding to rent to an applicant, provided they obtain valid authorization from their applicant and have permissible purpose to do so.

Consumer reports may include, but are not limited to, information such as:

  • Credit profiles
  • Criminal records searches
  • Rental verifications
  • Employment verifications
  • Eviction Searches

Providing notice of adverse action:

You must provide the applicant with an adverse action notice if you take any adverse action. This process allows the applicant to see what is on their report and dispute or correct any inaccurate information.

Adverse action notices must disclose the following:

  • Notice that adverse action was taken based on information obtained from a CRA
  • The name, address, and phone number of the CRA that prepared the consumer report
  • The consumer’s right to dispute the report’s accuracy or completeness and obtain a free copy of the report if requested
  • A statement that the CRA did not make the decision which resulted in adverse action and cannot provide the specific reason(s) why adverse action was taken
  • Credit score disclosures if a credit score was obtained

Landlords are encouraged to provide a copy of the full consumer report for the applicant at time of adverse action and to include the following FTC document: A Summary of Your Rights Under the Fair Credit Reporting Act

 Credit Score Disclosures in Adverse Action Notices

To read more about credit score disclosures, see the Dodd Frank Act Section 1100F here.  This document amended the FCRA to require additional disclosures if a credit score plays a role in adverse action.

Landlords taking adverse action in part based on credit score must include the following:

  • The consumer’s numerical credit score
  • The range of possible credit scores
  • All key factors that adversely affected the score
  • The date the credit score was created
  • The name of the person/entity providing the score or the information upon which the score was created

For more information regarding consumer reports and adverse action requirements, consider visiting the following FTC guidance document - Using Consumer Reports – What Landlords Need to Know.

[1] Using Consumer Reports – What landlords need to know ( – October 2016)