Using a Background Check for Real Estate Rental? The Government Says "Put It In Writing"

Using a background check in the real estate sector is incredibly common in the rental market. Landlords want to understand the individuals who might occupy their property, and some believe that a criminal record is an important element to assess before agreeing to provide housing. In conducting these checks, landlords may think they're only exercising their rights — but those undergoing screening have rights in this process, too.

Recently, several departments of the federal government, such as the Federal Trade Commission, have published guidance on this process. There is a growing concern that landlords may not fully understand or appreciate that their use of background checks means they are subject to abiding by specific federal laws—laws that often have hefty penalties for violations. 

Simultaneously, there has been a trend among landlords in recent years to avoid written communication with tenant applicants as a means of minimizing potential liabilities. Denials often occur without a stated reason. The federal government reminds all property managers that doing so means you're potentially skirting the law.

Why is written communication so important for rentals?

Landlords must obey the Fair Credit Reporting Act when using a real estate background check, which the FCRA defines as a type of consumer report. The FCRA describes extensive regulations for written communications with applicants during the process, beginning with gathering consent and notifying an individual of their rights. These regulations apply to all companies and extend into your decision-making process. 

Under the law, you must inform candidates that you're taking adverse action against their application if you do so because of information you obtained in a consumer report. Even if a candidate's criminal background check was not the primary reason for your denial, you must still report it to the candidate as a factor. Failure to do so means breaking the law.

Giving adverse action notices

The FTC and the Department of Housing and Urban Development recently published statements reminding landlords that they can’t avoid or ignore adverse action notices. What does that mean, though? Here's a quick overview of the adverse action process in a rental setting, beginning with your decision to deny the applicant.

• Provide a written pre-adverse action letter stating your intent and a copy of the consumer report. Applicants have a right to dispute their report.
• Wait at least five business days to evaluate any extenuating or supplementary information the applicant provides.
• If your decision remains the same, issue a final adverse action notice and include a further statement of the candidate's FCRA rights.

Creating a compliant tenant screening process

To avoid potential civil lawsuits from wronged candidates — or enforcement action from the government —landlords must understand the importance of written communication during the application process. The law is clear: you must provide adverse notices if a report factored into your decision at all. 

While this adds extra steps for using a background check in real estate, it also means you can choose tenants confidently in your compliance. Review your policy and procedures today and consider the value of a partner in the process. With no national criminal database, acquiring records promptly is important. At backgroundchecks.com, we not only provide in-depth reporting, but we support our partners with compliance information and adverse action support, too. See more about how we can help today.