Investigate Your Tenants Without Violating The FCRA

There is a substantial body of law regulating what consumer reporting agencies can and cannot report for purposes of tenant screening.  The overarching statute is the federal Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq.  Landlords should be aware of these regulations as they explore their tenant screening options.

The FCRA defines consumer reporting agencies (CRA’s) as “…any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.” 

Consumer reports are “…any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for:

1. Credit or insurance to be used primarily for personal, family, or household purposes;

2. Employment purposes; or

3. Any other purpose authorized under section 604 [§ 1681b].”

 § 604 of the FCRA permits CRA’s to furnish consumer reports only for specific or “permissible” purposes.  They may, for example, furnish consumer reports:

• In response to the written instructions of the consumer; 

• For employment purposes; and

• In connection with a business transaction initiated by the consumer.

 § 607 states that… “Every consumer reporting agency shall make a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior to furnishing such user a consumer report.”  This is often referred to as the “certification process” and it can be quite involved. 

Tenant and employment screening companies are CRA’s and must comply with FCRA’s certification requirements.  Reputable screening companies take this responsibility very seriously. 

Traditional Screening Model

Landlords under the traditional screening model are certified based upon their use of consumer reports “…In connection with a business transaction that is initiated by the consumer”.  Employers are certified base their use of the information “… for employment purposes.” 

 In practice, certification of landlords and employers under this model is quite involved – requiring CRA’s to:

• Secure a copy of the rental property list (landlords)

• Verify the business phone number (white pages or reverse directory)

• Verify a yellow page listing.

• Conduct an OFAC search (on the business and contact name)

• Procure a business credit report

• Obtain a copy of the business license or verifying the license through the Secretary of State

• Obtain at least three trade references

• Verify the business checking account

• Conduct a site inspection (generally done by a 3rd party for $80-100)

 Direct-to-Consumer Screening Model

Under the direct-to-consumer screening model the applicant is the end-user.  They order reports on themselves and then share their report with the landlord or employer.  The permissible purpose under which the CRA furnishes these direct reports is “…In accordance with the written instructions of the consumer to whom it relates”. 

Of course, the CRA must confirm the identity of the applicant before returning the report.  This process is known as authentication and is done (electronically) by comparing information provided by the applicant with information in their credit file. 

The direct-to-consumer model has several advantages:

1. It eliminates the traditional certification process – since the applicant is ordering their own report.

2. It is fully transparent – giving the applicant the opportunity to know what is in their report – and to dispute anything they feel is being reported in error – before it impacts their search for housing or employment.

3. It reduces the compliance burden and liability exposure associated with the traditional screening model. 

Consumer reporting is tightly regulated – for good reason.  Our privacy, the security of our identity and our ability to find housing and employment depend on it.  Ultimately, however, transparency is the most effective control.  Direct-to-consumer screening products are inherently transparent.  Compliance with consumer reporting law is dramatically less burdensome and there is less risk of legal or regulatory action against CRA’s, landlords and employers. 

As a result of these regulations, AccuRental Tenant Screening has actively embraced the direct-to-consumer model to reduce the burden on liability placed on landlords when engaging in the necessary process of tenant screening.  Please visit AccuRental Tenant Screening for more information.