One of the primary duties of a property manager is to procure qualified tenants for properties under management. Determining whether a tenant is “qualified” generally involves more than looking at a prospective tenant’s income. It often involves looking at things like a prospective tenant’s credit history, credit score, employment history, rental history, criminal record and more. Each of these factors can be important in making a decision to rent a property.
The Federal Trade Commission’s BCP Business Center (www.business.ftc.gov) has published the following articles which contain useful information on this topic for property managers: “Using Consumer Reports: What Landlords Need to Know,” “A basic ‘tenant’ of credit reporting,” and Disposing of Consumer Report Information? Rule Tells How.”
More and more property managers are turning to consumer reporting agencies (CRAs) to obtain information about prospective tenants. Common types of CRAs include credit bureaus, tenant-screening services and reference-checking services. CRAs must comply with the Fair Credit Reporting Act (FCRA). Established in 1970, the FCRA is designed to ensure the confidentiality and accuracy of consumer credit information.
CRAs have a duty to inquire about the intended use of consumer information before actually providing the information. Use of consumer information for tenant-screening purposes is permissible. Using the information to spy on competitors, neighbors, and former spouses is prohibited.
If a property manager refuses to rent to a prospective tenant or changes the rental terms (e.g. increasing the rent, increasing the security deposit, requiring a co-signor, etc.) based even partially upon information in a consumer report, then the property manager must give the prospective tenant an “adverse action notice.” Although giving an oral notice is permitted, written notice is recommended, because it provides evidence of compliance with the FCRA.
According to the FTC, an adverse action notice “… must include the name, address and telephone number of the CRA that supplied the consumer report, including a toll-free telephone number for CRAs that maintain files nationwide; a statement that the CRA that supplied the report did not make the decision to take adverse action and cannot give the specific reasons for it; and a notice of the individual’s right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer’s right to a free report from the CRA upon request within 60 days.”
Property managers and landlords who fail to comply with the FCRA can be sued in federal court. If a broker or landlord loses such a case, then he or she may have to pay court costs, the plaintiff’s reasonable legal fees and punitive damages. For more information on the FCRA or for a copy of the Act, you may call 1-877-382-4357 or go online at www.ftc.gov/os/statutes/fcrajump.shtm.
Commission Rule A.0108 requires brokers to retain records of rental transactions for three years. If a tenant’s rental application is rejected, then the broker should retain the tenant background information for three years from the rejection date. If a tenant’s rental application is approved and the tenant enters into a lease, then the broker should retain the background information for three years following the termination of the tenant’s lease.
When disposing of the information obtained from CRAs, landlords and property managers who acquired the information for business purposes must comply with the Disposal Rule which is enforced by the Federal Trade Commission. While the standard for proper disposal is flexible, property managers must take reasonable measures to ensure that all consumer information is disposed of in a manner that would prevent an unauthorized person from acquiring and using the information. For paper documents, shredding (so that they cannot be read or reconstructed) and burning are two methods of disposal that would satisfy the requirements for proper disposal. For digital information, destroying or erasing electronic files so that the information cannot be read is also acceptable.
While property managers may use CRAs as a tool for screening prospective tenants, they must exercise care to protect the information they obtain and to dispose of it in a manner that will prevent its use by unauthorized persons or for unauthorized purposes.
This article came from the February 2015-Vol45-3 edition of the bulletin.