One of the most important actions a landlord can take to make certain they end up with safe, rent-paying tenants is to order a tenant background check on the potential renter. Just as imperative in the process is the ability to gain and use the tenant information in a compliant manner.
A tenant background report is considered a consumer report, and they are governed by the Federal Fair Credit Reporting Act. This act (called the FCRA for short) requires landlords to establish reasonable processes for complying with its regulations. As a landlord, you should take this regulation very seriously, and make every effort to follow it correctly.
Now, this can be a little intimidating, but we are going to break it down into 6 manageable pieces to help you know how to stay in compliance with your tenant screening process.
1: Obtain written consent from the applicant. It is a good practice to include the agreement for consent in your rental application, and have every applicant give theirconsent before you begin the screening process. If there is every an issue with the applicant arguing they did not give you consent, you will be able to produce their signature as proof.
2: Develop a consistent process beforehand. In order to maintain compliance, you should hammer out a plan and follow it consistently with every applicant you screen. Put in writing the types of background screening you will perform, what stage you will perform it, and what outcomes will deter you from renting to an applicant. Consistently sticking to a tenant screening plan will go a long way toward keeping you compliant and protected from litigation concerning discrimination.
3: Understand the way you may use background checks. According to the FCRA, landlords have a permissible purpose ‘in connection with a business transaction that is initiated by the consumer”. The business transaction of renting to a tenant is your permissible purpose. However, the reports may only be used for this reason. You may not run the credit of an ex-girlfriend, a potential neighbor, or anyone else for any reason other than renting to an applicant.
4: Comply with adverse action procedures. If a landlord uses the information within a tenant background report to decide not to rent to a person, the landlord then must send the person a letter. This letter-called an Adverse Action Letter-notifies the person that adverse action was taken based on information in his background screening report. Under the FCRA, the letter also needs to include the name and contact information of the company that furnished the information. Most tenant screening companies will provide landlords with a template of the letter.
5. Maintain thorough records. If a situation arises where you are sued by a current or former tenant, detailed notes will be one of your biggest defenses. It’s a good practice to keep note anytime you request entry to the property. Also record rent increase notices, repair requests and subsequent completions, and safety updates in and around the property. And, of course, you will need to keep a record of the rent being paid, if they were late, etc.
6: Guard against information theft. As a landlord, applicants trust you with their private information. The application is likely to contain their social security number, and their credit report is a goldmine for identity thieves. Secure all paper documents in a locked filing cabinet, and online documents should be stored on a password protected computer.
The manner you dispose of the records should also be secure, as ‘dumpster diving’ is a popular way for identity thieves to gain access to private information. Invest in a shredder, and destroy all documents that hold sensitive applicant or renter information.
These 6 steps for a compliant tenant screening process are a good starting point for a landlord to use to ensure they are maintaining compliant standards. By taking the time to follow these steps, you can feel confident your practices are compliant, and that you are minimizing your risk of dealing with litigation down the road.