What Is the Fair Credit Reporting Act?

Although many states have specific laws that deal with the rental application process, every landlord in the United States must also follow federal laws. One of these is the Fair Credit Reporting Act (FCRA), which increases transparency for applicants when it comes to background or credit checks. Landlords are required to let applicants know if they’ve been rejected because of something on their credit report or rental history, and renters have the right to request a free copy of these reports every year to check for any errors.

A “consumer report” includes credit or background checks

Much of the FCRA revolves around something called a “consumer report”—a general term that includes things like credit checks and background checks. Examples of consumer reports that might be used by landlords to screen applicants include:¹

• A credit report from a credit bureau like TransUnion, Experian, or Equifax
• A report from a tenant-screening service that describes the applicant’s rental history based on housing court records or reports from previous landlords
• A report from a reference-checking service that contacts previous landlords or other people listed on the rental application on behalf of the landlord

Landlords can get consumer reports without written permission

In general, consumer reporting agencies are only allowed to release their reports with the written permission of the consumer to whom it relates. There are several exceptions, however, one of which applies to people with a “legitimate business need” for the information.² Landlords fall into this category, meaning they don’t need an applicant’s permission to request a background or credit check.³

If they’d prefer, a landlord may still include a disclaimer in the rental agreement (or have the applicant sign a separate form) that gives them explicit permission to request consumer reports.

“Investigative reports” require notice from landlords

For more information about a potential tenant, a landlord may use something called an “investigative report”—a report based on personal interviews that discuss a person’s lifestyle, character, and general reputation. These types of reports are regulated more heavily by the FCRA, and require landlords to provide written notice to applicants that they may request (or have already requested) an investigative consumer report. Landlords are also required to tell the applicant about their rights under the FCRA, specifically that they can request to know the scope and substance of the investigation.⁴

Applicants have the right to an “adverse action notice” in some cases

An “adverse action” is a decision that is unfavorable to the consumer. In terms of a rental application, that could include:

• Rejecting an application
• Requiring a co-signer on the lease
• Requiring a larger security deposit than another applicant
• Raising the rent higher than it would be for another applicant
• Requiring an additional deposit that wouldn’t be required for another applicant

If a landlord takes any of these adverse actions based on information they obtained from a consumer report, then they must provide the applicant with something called an “adverse action notice.” This can be delivered verbally or in writing (although written notice is recommended). The notice must include:⁵

• The name, address and telephone number of the consumer reporting agency (CRA) that supplied the consumer report
• A statement that the CRA that supplied the report didn’t make the decision to take the adverse action and can’t provide the reasoning behind the decision
• A notice of the applicant’s right to dispute the accuracy or completeness of any information in the report, and the consumer’s right to request a free report from the CRA within 60 days

An adverse action notice is not necessary when a decision was made based on information obtained from a person, such as a previous landlord, rather than a consumer reporting agency. However, if information from a consumer report played any part in the decision—for instance, if the rejection was due mostly to previous landlord testimony but also took into consideration a low credit score—then a landlord still must provide an adverse action notice.

Applicants can challenge the accuracy of their consumer report

If an applicant finds something incorrect on their report, they have the right to challenge it by writing a letter to the consumer reporting agency. For instance, there might be a debt listed that’s already been paid or information from another person’s account. Even if the challenge is not successful, the consumer has the right to add an explanatory note to their file that will be visible the next time someone requests their consumer report.⁶

Landlords must properly dispose of consumer reports

Landlords must securely dispose of consumer reports and any information they gathered from them when they’re done using it. This could include burning, pulverizing, or shredding paper documents. For electronic information, it must be disposed of in a way that it can’t be read or reconstructed.⁷

Applicants are entitled to a free copy of their credit report every year

Each of the three major credit reporting companies—TransUnion, Equifax, and Experian—are required by the FCRA to provide consumers with a free copy of their credit report once every 12 months. And, even if it’s been less than a year, companies can’t charge a person more than $12 for a copy of their credit report.⁸

Related articles

[1] "Using Consumer Reports: What Landlords Need to Know" (Federal Trade Commission)

[2] 15 U.S.C. § 1681b(a)(3)

[3] "Commentary on the Fair Credit Reporting Act" (Federal Deposit Insurance Corporation); "Renting an apartment? Be prepared for a background check" (Federal Trade Commission Consumer Information)

[4] 15 U.S. Code § 1681d(a), (b)

[5] 15 U.S.C. § 1681m(a)

[6] 15 U.S. Code § 1681i

[7] 16 CFR Part 682

[8] "Free Credit Reports," Federal Trade Commission