Adverse Action Notice for Landlords: How to Deny an Applicant Under the FCRA

In the US, a landlord who turns down a rental applicant, or asks for a co-signer, a larger deposit or higher rent, based even partly on a credit or tenant screening report must give the applicant an adverse action notice under the federal Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681m(a). The rule applies in every state.

This how-to lists what you need, the steps in order, and the mistakes that most often trip up small landlords. It covers federal law only; some states add their own screening rules.

What do you need before sending an adverse action notice?

Before you send an adverse action notice in the US, gather four things from the screening you ran:

• The report itself and the name, address and phone number of the consumer reporting agency (CRA) or tenant screening company that supplied it. If it is a nationwide agency, you also need its toll-free number (1681m(a)(3)(A)).
• Any credit score you used in the decision, with the details the agency gave you about it (1681m(a)(2)).
• Your written screening criteria, so you can show the decision followed the same standard you apply to everyone (see our guide to Fair Housing Act rules for landlords).
• The applicant's contact details and a way to keep a dated copy of what you sent.

You also need a permissible purpose to have pulled the report. Section 1681b(a)(3)(F)(i) allows a report for a "legitimate business need" in connection with "a business transaction that is initiated by the consumer", which is how a rental application fits. The FTC adds that landlords must certify to the screening company that the report will be used for housing purposes only.

How do you send an FCRA adverse action notice, step by step?

An FCRA adverse action notice is sent in four steps by any US landlord whose decision relied on a consumer report.

1. Decide whether the action is "adverse". The FTC's guidance for landlords defines it as "any action by a landlord that is unfavorable to the interests of a rental applicant or tenant." Its examples include denying the application, "requiring a co-signer on the lease", "requiring a deposit that would not be required for another applicant" and "charging a higher amount for rent than for another applicant."
2. Confirm the report played a part. The duty applies when the action is "based in whole or in part" on the report (1681m(a)). The FTC says the notice is required "even if the information in the report played only a small part in the overall decision."
3. Write the notice with every required element (see the table below). Section 1681m(a)(1) allows the notice to be oral, written or electronic, but a written or emailed notice gives you a record.
4. Send it and keep a copy with the application file and your criteria.

What else should US landlords do with screening reports?

US landlords must also dispose of screening reports securely. The FTC's landlord guidance says: "When you're done using a consumer report, you must securely dispose of the report and any information you gathered from it." The federal Disposal Rule is at 16 CFR Part 682.

Apply the same standard at every stage, including when the tenancy ends and you account for the deposit, as our guides to the Texas security deposit return rules and Florida security deposit rules explain.

What are the common adverse action notice mistakes?

The most common adverse action notice mistakes in the US are skipping the notice when the action was not a flat denial, and leaving out a required element.

• Treating a conditional approval as not adverse. A co-signer, a larger deposit or higher rent because of the report is adverse action under the FTC's guidance.
• Blurring who decided. The notice must say the agency did not make the decision.
• Leaving out the 60-day free report right or the dispute right. Both are required by 1681m(a)(4).
• No record. An oral notice is allowed, but leaves nothing to show later.

Under 15 U.S.C. 1681n(a), a person who willfully fails to comply with the FCRA is liable for actual damages or statutory damages of $100 to $1,000, plus any punitive damages a court allows and the consumer's attorney's fees.

Frequently asked questions

Do I need an adverse action notice if I approve the tenant with a co-signer?

Yes, if the co-signer requirement was based even partly on a consumer report. The FTC lists "requiring a co-signer on the lease" as an example of adverse action for landlords.

Can the adverse action notice be sent by email?

Yes. Section 1681m(a) allows oral, written or electronic notice. Email gives you a dated record of what you sent.

Do I have to tell the applicant why I denied them?

The FCRA notice in 1681m(a) does not require you to list your reasons. It requires the agency's contact details, a statement that the agency did not make the decision, any credit score used, and the applicant's rights to a free report within 60 days and to dispute it.

Does the FCRA apply to a small landlord with one rental?

Section 1681m(a) applies to "any person" who takes adverse action based on a consumer report, with no exemption for small landlords.

The bottom line

If a screening report played any part in turning an applicant down or asking for more, send a notice with all six elements, keep a copy, and destroy the report securely. Browse more Tenon10 guides by topic.