sacramento report
Avoid Trouble, Take Action
by Monica Guillén
During this legislative session, a number of bills have been introduced by lawmakers who want to limit the use of credit reports by businesses, including rental housing providers. One such example is AB 2918 (Lieber, D-Mountain View), legislation recently vetoed by the governor. If signed into law, this bill would have prohibited an employer from using a consumer credit report for evaluating a job applicant, unless the position is managerial or highly compensated. The term highly compensated is not defined in the legislation. CAA had requested a veto and is happy with the result.
These types of bills are relevant to the rental housing industry because of the industry’s reliance on credit reports to both evaluate rental applicants and employees. Notwithstanding any changes to the law, such as that which may be applied by AB 2918, rental property owners and management professionals must understand the basic requirements of existing law that apply when denying housing or placing conditions on a new tenant. Here’s an overview of the requirements under existing law.
State and federal laws allow housing providers and other creditors to evaluate past credit history, employment and other relevant information when deciding whether to do business with a particular consumer. At the same time, these laws seek to ensure that a consumer is notified about information obtained through a credit report, especially when that report results in some form of unfavorable action against the consumer.
Lawmakers have also determined that there is a need to ensure that consumer reporting agencies exercise their responsibilities with fairness and respect for the rights of consumers. As such, the Fair Credit Reporting Act and the California Consumer Credit Reporting Agencies Act were adopted to establish reasonable procedures that balance the needs of commerce with the privacy needs of consumers and their rights concerning credit accuracy.
What is an adverse action?
An adverse action is any action taken by a creditor, housing provider or other business that is adverse or unfavorable to the interests of a consumer. When such an action is taken, a notice must be provided by the owner to the applicant in the form of a Notice of Denial or a Notice of Conditional Acceptance.
When rental property owners and/or their agents deny housing to an applicant based upon information found in a credit report, they must provide the applicant with a written Notice of Denial (see CAA Forms 3.1 and 3.2).
An owner may decide to accept conditionally an applicant if, for example, the information from the applicant’s credit report shows that the applicant has a credit score lower than that required by the owner. A written Notice of Conditional Acceptance (CAA Form 3.3) must be provided to the applicant by the owner and include additional requirements, such as: a co-signer, a larger deposit (not to exceed statutory limits) and a higher rent. By using this notice, the applicant understands that his or her application to rent has been accepted, but is subject to certain terms imposed as a result of the information contained in a consumer credit report or from some other sources.
What information must be provided in the adverse action notice?
First, the name, address and telephone number of the agency that supplied the consumer report, including a toll-free number if the agency maintains files nationwide, must be provided. If the report was provided to the owner by a tenant screening agency and included a report from a credit bureau, the notice must include the contact information for the tenant screening agency, and may, but is not required to, contain the information from the credit bureau.
Second, a statement must be provided indicating that the agency that provided the report did not make the decision to take the adverse action and cannot give the specific reasons for it.
Third, a notice must be provided that explains the individual’s right to dispute the accuracy or completeness of any information furnished by the agency and the individual’s right to request a free copy of their credit report from the reporting agency within 60 days of the Notice of Adverse Action.
If adverse action is taken against a person who has applied to be a guarantor for an applicant, that person must also be notified. CAA Form 3.4 – Notice of Denial of Guarantor may be used to notify the guarantor that his or her application to serve as a guarantor was denied because of information contained in a consumer credit report or from information received from other sources.
Can the property owner forego the written notice and instead provide the applicant with the information verbally?
No. California law requires the notice to be provided in writing.
Is the notice required when the denial is based only in part on the information in the consumer report?
Yes. The notice must be provided if the adverse action was influenced at all by the information in the consumer report. For example, if both the credit report and the prospective tenant’s income failed the owner’s applicant approval standards, the rejected applicant is entitled to an Adverse Action Notice because the credit report influenced the denial.
Other than providing the adverse action notice, do I have to tell the prospective tenant why his or her application was rejected?
No, generally owners are not required to give rejected applicants an explanation. However, in order to protect against potential claims of unlawful discrimination, owners and managers should establish a screening process and criteria for evaluating prospective tenants, and they should apply them in a consistent manner. To protect against accusations of discrimination, property owners and their agents should maintain records of all applications and document valid business reasons for rejection.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Monica Guillén is CAA’s vice president of public affairs. Copyright © 2008 by Black Point Press. All rights reserved.