Legal Rules for Residential Tenant Credit Screening | Business ...

Cautious landlords generally screen residential tenants using credit reports or credit scores.? Although these screenings are entirely legal, they must comply with California and federal fair housing and fair credit reporting laws. Because penalties for violating these laws, even unwittingly, are large, it?s worth tailoring your tenant screening process to make sure it fully complies with all laws at every step, and keeping good records to show that you have consistently followed this process without exception.

Obtaining Credit Report or Credit Score

a. Application and screening fee charges

In California, a landlord can charge the prospective tenant a fee for the rental application and screening process. However, there are several restrictions:

• The fee must be the lesser of the landlord?s actual costs or $42.06 as of 2009, adjusted upwards by the landlord commensurate with any increase in the Consumer Price Index since that date;
• The landlord must give the tenant a receipt and itemized listing of what the screening fee covers;
• The landlord must return any unused part of a screening fee if the landlord only completes a partial screening;
• The screening fee can only be charged when rental units are available; and
• An applicant must be given a copy of any credit report that was obtained as part of the screening process, if requested.

b. Applicant can?t be required to prove immigration status or citizenship

A residential landlord cannot make any inquiry about citizenship, immigration status, or country or origin, and cannot require the tenant to provide any document that would establish this.? For this reason, the landlord cannot require the applicant to provide a social security number, except where required by federal law (such as for renting federally subsidized housing), as part of a credit check.

Instead, the landlord must develop criteria to apply to all applicants with little or no financial history, regardless of their immigration status, citizenship, or whether they possess a social security number.? For example, the landlord could reject all applicants who lack an extensive credit history, even if they are citizens and have a social security number.? Or, to prove identity, the landlord could request a government ID in any format ? a passport, a government-issued photo ID, or a driver?s license from any state or country.??For financial security, the landlord could require an increased security deposit or a co-signor. The important thing is that the landlord treat all applicants equally, and not follow any procedures that would tend to discriminate against illegal immigrants or non-citizens.

c. Applicant must give permission for credit check

A residential landlord must obtain the applicant?s written permission to run a credit check.?If the applicant has paid an application screening fee and requests a copy of the credit report (typically, by checking a box on the application form), the landlord must provide it.

Taking ?Adverse Action? Based on Credit Report or Credit Score

a. What ?adverse action? means

There are more laws that apply when the landlord takes an action against a prospective tenant based in whole or part on the prospective tenant?s consumer credit report and/ or credit score.? Examples of these actions would be refusing to rent or imposing requirements that would make renting more burdensome, such as:

• Requiring a larger rental deposit;
• Requiring a co-signer or guarantor for the lease; or
• Requiring that rent be paid in advance.

b. Adverse action notice

When the landlord takes adverse action based in whole or part on the information in the prospective tenant?s consumer credit report and/or on the credit score, California law requires the landlord to give the prospective tenant a written notice.? There are two sets of requirements:? one where the adverse action is based in whole or part on the credit report, and another where it is based in whole or part on the credit score.? If it is based on both, the notice must comply with both sets of requirements.? The notice is typically in the form of a letter to the prospective tenant, delivered in person or by first-class mail.

Adverse action based on credit report:? Where based in whole or part on information in the prospective tenant?s consumer credit report, the adverse action notice must contain this information:

• A statement that the decision was based in whole or part on information contained in a consumer credit report;
• The name, address and telephone number of the consumer credit reporting agency who provided the report to the landlord;
• A statement that the applicant has the right to obtain a free copy of the report within 60 days from the credit reporting agency identified in the notice; and
• A statement that the applicant has the right to dispute the accuracy or completeness of any information in the report.

Adverse action based on credit score:? Where based in whole or part on the prospective tenant?s credit score, the adverse action notice must contain this information:

• The numerical credit score used to make the credit decision;
• The range of possible of possible scores under the model used;
• Up to four key factors that adversely affected the credit score (or up to five factors if the number of inquiries made with respect to that consumer credit report is a key factor);
• The date the credit score was created; and
• The name of the person or entity that provided the credit score or credit file on which the credit score was based.

c. Penalties for failing to provide adverse action notice

California and federal laws carry heavy penalties for failing to provide a proper adverse action notice.? Willful failure can be punished by a court award of the tenant?s damages, including pain and suffering, plus punitive damages and attorney?s fees and court costs. Negligent failure can be punished by a court award for the same, except for punitive damages.? In addition, the Federal Trade Commission and State Attorney General can bring court actions against the landlord to enforce compliance. The landlord?s only defense is to prove by a preponderance of the evidence that the landlord maintained reasonable procedures (such as a written policy, automatic calendaring, files on each applicant with checklisted documents, and printed forms) to assure compliance with the notice requirements.

Skilled Legal Assistance for Landlords Offered by San Diego Law Firm

If you own commercial or residential rental property, San Diego Law Firm?s experienced real estate lawyers have the skills and years of experience to help you develop policies and procedures to keep you in full compliance with state and federal laws.? We offer fixed fees once we know what your situation requires.? Please call us for an appointment at (619) 794-0243. ?We look forward to helping you.

This entry was posted on Wednesday, May 30th, 2012 at 4:49 pm and is filed under Landlord, Real Estate.

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