FCRA Adverse Action Letter for Tenant Screening (Free Template)

After advertising your vacant rental property and receiving applications, you might assume you’re guaranteed to find a great new tenant. However, during the tenant background check process, you may uncover information that leads you to deny the application or modify its terms.

If that’s the case, you’ll have to send the denied applicant(s) an adverse action letter. As a requirement of the Federal Credit Reporting Act (FCRA), these letters are essential in the rental application process. They protect you, provide transparency to the tenant, and ensure legal compliance with federal law.

Here at TurboTenant, we’ll explore everything landlords should know about FCRA adverse action letters, including when these letters are needed, what to include in them, and what happens if you don’t send one. Keep reading to learn more.

What is an FCRA Adverse Action Letter?

An FCRA adverse action letter is a document notifying an applicant that their application has been denied or that the lease terms have changed due to information uncovered in a screening report.

In practice, FCRA adverse action letters help protect landlords against claims of discrimination, provide transparency, and give applicants a chance to address any inaccurate information in their applications.

When Landlords Should Send an Adverse Action Letter

Landlords are required to send FCRA adverse action notices in the following circumstances:

Negative Credit Report Information

A credit report is an essential component of the tenant screening process. If the credit check reveals a low credit score or a poor payment history, including overdue loan payments, landlords may deny housing or modify the lease terms after providing an FCRA adverse action notice.

Criminal Background Check Red Flags

Landlords can also deny a rental applicant or change lease terms if the criminal background check uncovers criminal information, so long as the state you’re operating in has no restrictions. However, it is essential to understand that there is a significant difference between an arrest and a conviction. A number of states prohibit denials based on arrest records. Check with your local landlord-tenant laws.

An FCRA adverse action letter should specify the reason for the denial or lease change and remind tenants of their right to dispute anything found in the background check.

Eviction History Records

A background check may reveal information about previous evictions or disputes with landlords. Most states permit landlords to deny housing or alter lease terms because of an applicant’s prior eviction history, but you must still inform the renter of this determination.

Incomplete or Unverifiable Information

In some cases, renters submit incomplete applications with missing details or include information that cannot be independently confirmed. An FCRA adverse action letter may provide the applicant with an opportunity to correct the record.

Insufficient Income or Employment History

Should the renter lack sufficient income or an established employment history to demonstrate the ability to pay rent on time, landlords can deny the application for housing or modify the lease to include a guarantor or co-signer.

FCRA Requirements for Adverse Action Letters

If you’re in one of the situations above and find that you have to send an adverse action letter to a rental applicant, you’ll have to follow a few guidelines to ensure your letter adheres to FCRA requirements.

Here’s what you’ll have to include:

Provide the Consumer Reporting Agency’s Name and Contact Info

The letter should have the name, address, and phone number of the consumer reporting agency you used to generate the tenant’s credit report and background check. Agencies include credit bureaus, reporting companies, and other tenant screening services.

State The Agency Didn’t Make the Decision

Ensure that the tenant is aware that the reporting agency you used to run the background check didn’t play a role in deciding to deny housing or change the lease terms. As the landlord, you are solely responsible for the decision and must explain this to the renter.

Inform Applicant of their Right to the Report

Tenants have a right to receive a free copy of their background check and credit report within 60 days of receiving the adverse action notice. However, you don’t need to provide these reports to the tenant automatically unless they request it.

Notify Applicant of Dispute Rights

As part of the FCRA, the applicant has a right to dispute any errors they may see in the background check or the landlord’s adverse action letter. Your letter should include a statement of that right, should they choose to take further legal action.

What to Include in an Adverse Action Letter

Beyond the legal requirements for adverse action letters, it is also essential to include a few key pieces of information to ensure that the letter reaches the correct person and effectively conveys the intended message to the applicant.

An adverse action letter should have the following:

Letter Date and Applicant Name

Make sure to include the date that you’re sending the adverse action letter and the full name of the applicant. The date is significant, as tenants will be on a strict timeline to take further action, like requesting a copy of the credit report or disputing any errors.

Property Address

To prevent confusion, mention the rental property address for which you’re denying housing or the terms of the lease you’re changing. Remember, the applicant may have applied for housing at many different rentals.

Clear Reason for Denial (If Applicable)

Be as transparent as possible and explain to the applicant exactly why you denied their application or changed the terms of the lease. No matter the reason, providing this explanation can help establish trust and offer some protection against discrimination claims.

Common Reasons for Adverse Rental Decisions

Though many factors may lead you to take adverse action against a potential renter, there are a few common reasons that tenants — and landlords — should consider during the application process.

Here’s what we recommend keeping an eye out for.

Low Credit Score or High Debt-to-Income Ratio

A low credit score may indicate a history of late loan payments or unpaid bills that were sent to a collections agency. Meanwhile, a high debt-to-income ratio may indicate that the tenant lacks sufficient funds to cover their existing debts, let alone their monthly rent payments.

Past Evictions or Unpaid Rent

Previous evictions or a history of unpaid rent are red flags for apparent reasons. Always consider these factors during the background check. You may want to deny housing or require additional money for the security deposit to protect yourself from similar outcomes.

Criminal History

Some states and localities prohibit landlords from considering an applicant’s criminal history during the rental application process. When permitted, though, you should review these records to determine whether an applicant would pose a threat to your property, other tenants, or yourself.

Lack of Stable Income or Employment

If the applicant doesn’t have a stable income or employment, they may struggle to pay rent on time every month. You could request additional records, such as bank account statements, to verify that the tenant has alternative means of paying rent.

Or, you may end up taking adverse action so you can rent to a more financially stable tenant.

Inaccurate or Incomplete Application Information

If the tenant provides inaccurate or incomplete information on the rental application, it will be difficult, if not impossible, to conduct an accurate background check. Though these inconsistencies may occur accidentally, they could also indicate an applicant’s attempt to hide information.

Consequences of Not Sending an Adverse Action Letter

Considering that the FCRA requires an adverse action letter for the circumstances mentioned earlier, landlords may face legal and financial consequences for failing to uphold federal law.

If an adverse action letter becomes necessary, keep these factors in mind:

FCRA Violations May Result in Legal Action or Fines

Landlords who don’t provide adverse action letters may be subject to lawsuits from tenants or governing bodies like the Federal Trade Commission and the Consumer Financial Protection Bureau.

Additionally, you could be on the hook for fines, the applicant’s legal fees, actual damages, and more.

Tenants Can Dispute the Decision Without Understanding the Cause

If you don’t explicitly state why you took adverse action, the applicant might come to their own, incorrect conclusions. As a result, tenants may take legal action, which can be costly and time-consuming to fight, even if a judge rules in your favor.

Inconsistent Processes May Raise Fair Housing Concerns

Similarly, confusion over the reason for the adverse action could lead to issues with your local fair housing authority. It’s essential to be consistent and have valid reasons for denying housing or changing lease terms. Document those reasons so your tenant selection process isn’t called into question.

You May Lose Credibility or Trust

Whether or not legal action ensues, failing to provide an adverse action letter may erode the trust of your applicants (and your current tenants). Naturally, serious ramifications could follow for your rental property business, making it difficult for you to secure reliable tenants in the future.

Free Adverse Action Letter Template (Copy & Paste)

To help you send a correct, legally binding adverse action letter in accordance with FCRA regulations, TurboTenant has put together an easy-to-use template.

All you have to do is fill in the required details before providing the letter to the applicant.

Hello <Applicant name>

<Landlord name>, the landlord of <rental property address>, regrets that they aren’t able to offer you the rental at this time.

This decision was based, in whole or in part, on the information in your Screening Report provided by <the agency through which you pull credit reports – TurboTenant uses Rent Butter>, the Credit Reporting Agency.

The Credit Reporting Agency plays no part in the decision to take any action on your rental application and is unable to provide you with specific reason(s) for this adverse action.

You have the right under the Fair Credit Reporting Act to obtain a free copy of your consumer report from the above Credit Reporting Agency. You must request a copy of your consumer report in writing within 60 days from the receipt of this notice.

You also have a right to dispute the accuracy or completeness of any information the Credit Reporting Agency reported. You must file a written request with the Credit Reporting Agency that your consumer report contains one or more inaccuracies, is incomplete, or contains errors of fact.

If you would like to request a copy of your consumer report or have a question on the completeness or accuracy of the information used to create the consumer report, please contact the Credit Reporting Agency listed below:

Mailing Address:

<Provide the full mailing address for disputes – for example, here’s Rent Butter’s info:

Rent Butter

Rent Butter Headquarters

4255 South Indiana Ave., Suite 201

Chicago, IL 60653>

Email: <the email address of the dispute office for your credit report provider of choice – Rent Butter’s is [email protected]>

Phone: <the phone number of the dispute office for your credit report provider of choice – Rent Butter’s is 1-312-224-6078>

If you have any questions about your rental application, please contact me at:

<Your name>

<Your phone number>

<Your email address>

Best of luck in your housing search,
<Your name>

Remember, TurboTenant doesn’t provide legal advice. If a legal question arises, please consult with your local landlord-tenant attorney for guidance.

Conclusion

Adverse action letters are a tricky, but often necessary, part of doing business as a landlord. Depending on how many applications you receive for a particular rental property, you may find that you have to deny housing or change the terms of your lease — as long as it’s only done for the reasons described above.

Since federal law requires adverse action letters, landlords must adhere to specific form and content requirements rather than sending an informal message. To ensure you’ve included all of the necessary details, use TurboTenant’s adverse action letter template.

Regardless of why you’re taking adverse action against an applicant, it’s crucial to provide this letter to protect yourself and your rental property from legal and financial consequences.

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FCRA Adverse Action Letter FAQs

Disclaimer: This blog is for informational purposes only and is published by TurboTenant. It is not legal, financial, or tax advice. Laws and regulations for landlords vary by state and locality and may change over time. Always consult a qualified attorney, accountant, or local housing authority before making decisions related to your rental property. The publisher and authors assume no responsibility for actions taken based on the information provided.