I've always thought (and still think) that requests for consumer credit reports for residential rentals is an abuse of the Fair Credit Reporting Act (FCRA).
Why do I hold an opinion that seems to be contrary to common practice?
First, I'm no stranger to holding opinions that contradict popular positions. So, this one shouldn't really surprise anyone who actually knows me.
But, unlike many, I don't hold opinions based on "feelings." I form opinions based upon facts as I understand them.
And, it's my opinion that requesting consumer credit reports for residential rentals is, 1) a violation of the FCRA, and 2) unnecessary. Here are the facts in support of my opinion.
What I believe is the most important fact in support for my opinion, is that requesting a credit report for residential rentals is a violation of the Fair Credit Reporting Act because no credit is being extended.
Yes. I understand there are those who argue that a lease is a contract and for THAT reason alone, a landlord is entitled to obtain a consumer credit report from a tenant applicant.
However, if you actually READ the Fair Credit Reporting Act, you'll find that the entire law is intended to restrict the use of a consumer credit report to its use for commercial business purposes.
Additionally, if you read §604. Permissible purposes of consumer reports [15 U.S.C. §1681b] you'll find absolutely no mention of using a consumer credit report for residential lease or rental purposes. The issue of residential leasing isn't even eluded to in the Act.
But, what I see as the most overwhelming evidence that the use of consumer credit reports for residential rentals is a violation of the FCRA, is the indisputable fact, that when reviewing a consumer credit report, you will NEVER find any information regarding the person's performance on a residential rental lease contract in their consumer credit report.
The fact that there's never any information in a consumer credit report that addresses a person's performance on a residential lease contract speaks directly to the fact, that the FCRA is not, and was never intended to be used as a tool in renting residential real estate.
Consequently, it's my opinion, that there is absolutely no legal basis upon which a landlord (or their licensed real estate agent) may either demand, or even request that an applicant for tenancy provide a credit report as a required condition for consideration to become a tenant.
Since the only way a Consumer Credit Report may be obtained, as outlined in § 604 Permissible purposes of consumer reports [15 U.S.C. §1681b], which in part says:(a) In general. Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other:
(2) In accordance with the written instructions of the consumer to whom it relates.
the question that begs an answer is:
Should a tenant applicant give their permission to landlord to obtain their consumer credit report?
In light of the fact, that it's my opinion that the use of consumer credit reports are NOT a legal use of those credit reports, I would have to say NO.
However - let's explore this issue further, based solely on the hypothesis that the use of a consumer's credit report is a legal use under the FCRA in considering a tenant for a residential rental.
Based solely upon that hypothetical - I would advise ALL tenant applicants to OBTAIN AND REVIEW a written copy of the landlord's credit requirements policy BEFORE deciding whether or not to authorize access to their credit report.
FURTHER - if the landlord either does NOT have a written outline of credit requirements, or if those requirements are unreasonable, a tenant prospect should REFUSE to provide their permission since they don't have sufficient information that their credit report will be viewed properly or evaluated equitably.
UNFORTUNATELY - landlords typically do not have written credit requirement standards, AND tenant applicants are never provided professional advice to ask for such credit requirement standards.
Thus, the cycle of the improper (and, I would argue - illegal) use of consumer credit reports in residential rentals continues.
Let's suppose a hypothetical in which there's been a legally enforceable determination (e.g. a court decision) that says, the use of consumer credit reports is NOT a legal use for considering a tenant for residential rentals.
Would such a ruling damage or inhibit a landlord's ability to adequately vet a tenant applicant?
Landlords have many other methods of evaluating a residential tenant applicant that are far more important and far more useful than relying on information in a consumer credit report.
Among these other methods are criminal background checks (which I believe are FAR more relevant to a landlord's evaluation of a prospective tenant than is a consumer credit report), employment verifications, as well as personal and business references.
Furthermore, common sense dictates:
1. People need a place to live just as much as they need food to eat. So, while they may miss a few payments on their credit cards, or a car payment here and there which will have a major negative effect on their consumer credit rating, those same people are FAR LESS LIKELY not to pay their rent. So, what good is a consumer credit report to vet a prospective residential tenant? None - in my opinion.
2. The majority of residential tenants wouldn't be renting if they had "good" credit. They'd probably be buying. So, the use of the consumer credit report of how good or bad a prospective tenant may be in the future, is virtually useless.
Something that few, if any, landlords and their real estate agents consider, is - by refusing a tenant prospect based on their consumer credit report, BOTH the landlord AND the agent open themselves up to significant potential legal liability.
The problem of legal liability stems from the circumstance, which is - if they're sued by a tenant prospect who was refused tenancy based on their
consumer credit report, AND if neither the landlord nor the real estate agent can produce a credit requirements standard policy by which the applicant was evaluated - BEING THE SAME POLICY that they (the landlord and agent) regularly use to evaluate ALL applicants - AND - if they cannot prove that they provided a copy of their policy to ALL tenant applicants - BOTH the landlord and their real estate agent are likely to face some major financial consequences; the agent may also face the consequences of having to answer to their real estate licensing agency, as well.
IN THE END, I believe, that the use of consumer credit reports for residential rentals is an abuse of the Fair Credit Reporting Act.
MY ADVICE for landlords and real estate agents - DON'T USE THEM.
MY ADVICE for prospective tenant applicants - DON'T GIVE YOUR AUTHORIZATION to have your consumer credit report used to evaluate you for a residential tenancy UNTIL YOU'VE CONSULTED A COMPETENT REAL ESTATE LAWYER.
AND - if you wish to provide your permission - BE SURE to OBTAIN AND REVIEW a copy of the landlord's written credit requirements standards by which your consumer credit information will be evaluated BEFORE your give your permission.
And, if the landlord or agent doesn't have a written credit requirements standard, CONSULT AN EXPERIENCED REAL ESTATE LAWYER before you agree to allow the landlord or agent view and use your credit report to determine whether or not they'll accept you as a tenant.
I hope you've enjoyed this article. And, I hope it stimulates you to think more objectively about this subject.
I'd love to hear your thoughts and comments.
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