Real Estate Brokers & Credit Reports

By Lisa Petrilli, Sorling Law Offices

In certain rental markets, it may be common for real estate brokerage licensees to find tenant applicants for their landlord clients. Landlords and sometimes their real estate broker will evaluate the suitability of these applicants based upon credit reports prepared by a Consumer Reporting Agency (CRA).  While landlords may obtain such reports directly from a CRA, in some situations the real estate broker obtains the credit reports from the CRA and provides the reports to the landlord.   Real estate brokers acting as agents for landlords need to better understand the legal restrictions on their accessing, using and disclosing such credit reports.

The Federal Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., governs the use of credit reports by landlords, real estate brokers and leasing agents. The Federal Trade Commission (FTC), specifically the newly formed Bureau of Consumer Financial Protection of the FTC, is charged with enforcing the FCRA.

Under the FCRA, a landlord or a landlord’s agent investigating applicants for apartment rentals may obtain consumer reports on prospective tenants provided the landlord and its agents follow the provisions of the FCRA. The issue is whether a real estate broker acting as a landlord’s agent may obtain a credit report and furnish such report to the landlord.

To comply with the FCRA, one must not only have a permissible purpose to obtain a credit report from a CRA, but must also be the one intending to use such report. A landlord renting an apartment has a permissible purpose to obtain a credit report from a CRA on individuals who apply to rent property. Where the landlord obtains the credit report and uses the report to determine whether an applicant is a suitable tenant, the landlord complies with the FCRA. Similarly, where a landlord’s agent obtains the report, the agent has a permissible purpose and complies with the FCRA provided the agent is working with the landlord in reviewing the report and evaluating the credit of the applicant. The agent of the landlord may share the report with the landlord.

In certain situations a real estate broker may obtain a credit report and then furnish the report to the landlord without ever reading or evaluating the report. A real estate broker or leasing agent who obtains a credit report from a CRA, but who is not involved in reviewing the report or evaluating a tenant’s credit worthiness based on the credit report is not authorized to obtain such report. While the agent has a permissible purpose to obtain the credit report on behalf of the landlord, when the agent does not intend to use the credit report, the agent is not authorized by the FCRA to obtain the report.  Real estate brokers and leasing agents should only access credit reports if they will actually be assisting the landlord in reading the credit report and evaluating the credit of the applicant. Where a real estate broker or leasing agent obtains the credit report without intending to use the report, the agent violates the FCRA.

Real estate brokers and leasing agents not intending to use a credit report should refrain from obtaining credit reports for landlords, and instead should insist that the report be obtained by the landlord who actually reviews the credit report and evaluates the applicant’s credit.  For real estate brokers and leasing agents who are actively involved in reviewing the credit report and evaluating the credit of the applicant with the landlord, they should become familiar with the additional requirements of the FCRA.

If the real estate broker is involved in reviewing the credit report and evaluating the applicant’s credit, the broker must comply with the FCRA.  If an adverse action is taken by the agent or landlord, certain notice must be provided to the applicant. An adverse action is any action by landlord or its agent that is unfavorable to the interests of a rental applicant. Common adverse actions include: denying the application; requiring a co-signer on the lease; requiring a deposit that would not be required for another applicant; requiring a larger deposit than might be required for another applicant; and raising the rent to a higher amount than for another applicant.

When an adverse action is taken that is based solely or even partly on information in a consumer report, the FCRA requires that a notice of the adverse action be provided to the consumer. The notice must include: the name, address and telephone number of the CRA that supplied the consumer report, including a toll-free telephone number for CRAs that maintain files nationwide; a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and a notice of the individual's right to dispute the accuracy or completeness of any information the CRA furnished, and the consumer's right to a free report from the CRA upon request within 60 days.

The adverse action notice is required even if information in the consumer report was not the main reason for the denial, the increase in security deposit or rent or other adverse action. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.

The adverse action notice is not required to be sent by both the agent and the landlord where the agent is acting on behalf of the landlord. However, the landlord and agent need to discuss their obligations under the FCRA and reach an agreement as to who will send and retain the adverse action notices.

The FCRA does not require that adverse action notices be retained by landlords or their agents for any certain period of time.  However, comments and articles interpreting the FCRA suggest keeping such notices for a minimum of five years from the date the adverse action is taken.  Five years is the time period in which a consumer has to bring an action under the FCRA. Keeping records for the five year period may assist the landlord or agent in defending an action brought by a consumer under the FCRA. 

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