Phone: 310-729-6573
Email: martin@martinfeinberg.com

An Adverse Action Notice Ensures Property Managers Follow the Law

Image is a "denied" stamp, in red ink against white.Novice rental property owners and property managers are not always aware of the many different laws and regulations that they are required to follow.  Some, for example, may not know that, under certain conditions, property managers are legally required to provide an adverse action notice to perspective tenants whose rental applications were denied during the tenant screening process. This is one of the requirements of the Fair Credit Reporting Act (FCRA).

Many landlords use a perspective renter’s consumer reports to help them decide whether or not the applicant will be a good match for their rental property.  Basically, a consumer report is a background report that contains personal information on a consumer.  They typically include:

  • Credit score
  • Rental history
  • Eviction history
  • Credit history
  • Criminal history
  • Bankruptcies, liens, and judgments

According to the FCRA however, if a property manager looks at a rental applicant’s consumer reports as part of their tenant screening process, and decides to deny the application, that property manager must send an adverse action notice to the applicant.

The Federal Trade Commission(FTC) and FCRA generally define the term “adverse action” as when a property manager denies a rental applicant housing or decides not to renew a lease agreement, based on information found in a consumer report.

Other examples of adverse action that can be taken by a property manager such as Martin Feinberg include:

  • Requiring a co-signer on the lease;
  • Requiring a deposit that would not be required for another applicant;
  • Requiring a larger deposit than might be required for another applicant; and
  • Raising the rent to a higher amount than for another applicant.

Likewise, if a property manager decides to deny a rental application for any legal reason, and they accessed a consumer report as part of that process, they must also provide an adverse action notice to the applicant.

Legal Screening Processes

Professional property managers are allowed to screen for qualified tenants by reviewing a perspective tenant’s credit report and criminal record, verifying employment and income, checking references, and speaking to past landlords.

However, under the Fair Housing Act property managers and rental property owners are not allowed to deny any rental applicant due to the applicant’s race, religion, gender, familial status, disability, or nationality.

For this reason, many experienced property managers choose to protect themselves from discrimination claims by informing all applicants exactly why they were not approved to rent the property through an adverse action notice, even when it may not legally be required.  It is the best way to ensure that FCRA  and FTC requirements have been observed.

Image is two boxes with a choice between a check mark and an x.