What landlords need to know about obtaining background reports on potential tenants
June 7, 2016
It is a good idea for landlords to obtain background information about their potential tenants. Among other reasons, this may enable a landlord to validate the tenant's name, employment status, credit history, past rental performance, and criminal record. In addition to landlords obtaining information themselves, there are numerous ways to obtain background reports online for a fee. Landlords who use such services should familiarize themselves with the requirements of a federal law known as the Fair Credit Reporting Act (FCRA) as discussed in this article.
When can a landlord obtain a background report? The FCRA does not allow landlords to obtain background reports on tenants at any time and for any reason. Rather, the FCRA generally limits landlords to obtaining background reports only where (1) a tenant has requested a background report; (2) a tenant has submitted an application to the landlord; (3) a tenant is delinquent in paying rent; or (4) the landlord is deciding whether to renew an existing lease. The key is that there must be some kind of active business purpose for obtaining the report. It would not be appropriate for a landlord to request a background report with respect to a potential tenant if the landlord does not have a unit available to lease or if the landlord is simply curious about the tenant during a time when the tenant is current in paying rent.
It is not necessary for landlords to have tenant permission to obtain a report if one of the other reasons for obtaining the report is satisfied. In any event, it is advisable for landlords to include language in the rental application under which the tenant specifically requests a report (not merely authorizes it) and directs all reporting agencies to provide one to the landlord at any time. This may ensure that obtaining a report is always allowed.
What can landlords do with the information obtained from a background report? As just noted, background reports are only available in certain circumstances. This means landlords may not disseminate background reports to third persons who do not satisfy the requirements for obtaining the reports. Given the proprietary nature of background reports, landlords may not even provide a copy of the report to the tenant unless the landlord takes some kind of "adverse action" based on the report. The adverse action could include refusing to lease to the tenant or requiring additional consideration (such as a higher security deposit or co-signer) as a condition of leasing to the tenant.
What are the requirements if a landlord takes adverse action against a tenant? If a landlord takes adverse action against a tenant based in whole or part on a background report, the FCRA requires the landlord to provide the tenant with a special notice. The notice must generally (1) describe the adverse action being taken; (2) provide the contact information for the company that provided the report; (3) contain a statement that the reporting company did not make the decision to take the adverse action and does not know the reasons for it; and (4) provide the tenant with notice that the tenant can obtain a free copy of the report from the company and dispute information contained in it. While the FCRA allows the notice to be given orally, it is advisable for landlords to provide notices in writing. No notice is required if a landlord takes adverse action based on information obtained directly, such as by calling references or simply reviewing a rental application. As a practical matter, if a landlord obtains a background report and does not lease to the tenant, it should provide the special notice.
In sum, the FCRA basically controls when landlords may obtain background reports, what they can do with the information, and what notice they must provide to a tenant when they take adverse action based on a report. Failure to comply with FCRA can result in landlord liability.
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Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.
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