A Short Guide to Denying Rental Applicants

When looking through rental applications, sometimes you have no choice but to reject an applicant, whether it be because of their credit score, eviction report or something else. It can be tough to know how to handle denying applicants as there are some common questions that come to mind:

1. Do you have to give notice when denying applicants?
2. How can you let an applicant know he or she has been denied?
3. What requirements must you follow under the FCRA?

It's critical to lawfully deliver rental decisions when going through the screening process. Here's what you need to keep in mind as you screen tenants.

When to use a denial letter:

A denied rental application letter is also known as an adverse action notice. An adverse action is an action that you take when you want to communicate an unfavorable circumstance to an applicant. According to the FCRA, your adverse action notice must be done orally, in writing, or electronically.

When you've concluded the rental application process, you have three responses you can give to applicants:

1. Accept

The simplest of the three decisions is the 'accept' decision. Accepting an applicant doesn't require you to do anything special, so feel free to let the applicant know of your decision however you like.

2. Accept on condition

This decision is an 'accept,' but only if the applicant were to meet additional requirements.

Some examples of an accept on condition:

1. Requiring a guarantor/co-signer on the lease title
2. Requiring a deposit that might not be needed for other applicants
3. Requiring a larger amount for a deposit
4. Raising the price of rent

When you use any consumer reports (credit, criminal or eviction reports) as part of your decision, you're likely triggering a requirement to deliver an adverse action notice to tenants to let them know your final decision.

3. Deny

Your last option is to deliver a straight denial, or denying applicants. When you reject an applicant, your decision is typically made using some combination of rejection criteria, consumer reports and rental application materials. Your adverse action notice should contain your decision to deny as well as your reasoning for the decision.

To avoid discrimination when denying applicants, please consult with an experienced landlord/tenant attorney.

According to the FCRA, if you based your 'accept on condition' or 'deny' decision on the results from a consumer report, then it's almost certain that you need to let applicants know of your adverse decision using an adverse action notice.

What is required on an adverse action notice?

Even though FCRA guidelines say you can deliver your decision orally, in writing or electronically, you might consider rendering your decision in writing. Giving your decision orally does not leave a paper trail that you can lean on in case an applicant claims you violated the law. According to the FCRA, a few crucial items need to be on an adverse action notice:

1. The phone number, name, and address of the agency who provided the report
2. A statement that the consumer reporting agency didn't decide any unfavorable actions
3. Notice that the applicant can dispute inaccuracies found on the report and that he or she is entitled to a free report if requested within 60 days

Sending an adverse action notice isn't always the easiest thing to do, so you should take extra precautions to ensure you're not violating any regulations. Being mindful of the law can help keep you out of trouble. While you should watch out for things like discrimination, sending an adverse action can also help prove that you are acting within FCRA guidelines. In the end, it's your responsibility to protect you and your business.