Last week the Federal Trade Commission issued guidance to landlords who use consumer reports to conduct background checks on potential tenants. Here are seven significant highlights:
- Although landlords do not need to obtain written permission from applicants before purchasing a simple consumer report, obtaining permission may still serve a very useful purpose: The landlord will be able to easily prove that it had a permissible purpose. (Having a permissible purpose is required under federal law.)
- A landlord has a permissible purpose when it has a legitimate business need for the information contained in a consumer report. And a Landlord has a legitimate business need when a person approaches the landlord and seeks to initiate a business transaction. Applying to rent an apartment is an example.
- The FTC cautions landlords, you must use the consumer report for housing purposes only and not for any other purpose.
- The FTC further cautions: establishing a blanket policy of refusing to rent to anyone with criminal history might violate the Fair Housing Act.
- If a landlord takes an adverse action against an applicant, it must follow certain adverse action procedures. First and foremost, the landlord must notify the applicant that it has taken the adverse action. When providing this notification, the landlord should disclose the identity and contact information of the consumer reporting agency that supplied the report. Explain to the tenant that the agency did not make the decision, and advise her that she can obtain a free copy of her report and dispute the accuracy or completeness of the information supplied by the agency.
- Landlords need to be careful: the term “adverse action” casts a broad net. Refusing to lease to an applicant is not the only type of adverse action that exists. Requiring an applicant to obtain a cosigner on a lease, or imposing a deposit requirement that’s not required for other applicants, or raising the rent higher than what applies to the standard applicant, all constitute adverse action. In such situations, the landlord must provide the adverse action notice.
- When finished with a consumer report, a landlord must destroy the reports in way that protects the identity of the applicant – burning, shredding, pulverizing, and permanent deletion are examples.
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