Adverse Action Notices: What the FCRA Requires and How to Comply
If you deny a tenant based on a credit report or background check, you must send an adverse action notice. Here is exactly what it needs to include and when to send it.
What Is an Adverse Action Notice?
An adverse action notice is a written communication required by the Fair Credit Reporting Act (FCRA) whenever you deny a rental application, require a higher deposit, or impose other unfavorable terms based in whole or in part on information from a consumer report.
Consumer reports include credit reports, criminal background checks, eviction history reports, and any other report obtained from a consumer reporting agency. If the information from these reports influenced your decision in any way, the notice is required.
When You Must Send One
You must send an adverse action notice whenever you take adverse action based on a consumer report. Adverse action includes denying the application, approving with conditions (higher deposit, co-signer requirement), or renting at different terms than originally offered.
The FCRA requires a two-step process. First, before taking adverse action, send a pre-adverse action notice giving the applicant a copy of the report and a summary of their rights. Wait a reasonable period (typically 5 business days) for them to dispute any errors. Then, if you proceed with the denial, send the final adverse action notice.
What the Notice Must Include
A compliant adverse action notice must include the name, address, and phone number of the consumer reporting agency that furnished the report. It must state that the agency did not make the decision and cannot explain why it was made. It must inform the applicant of their right to obtain a free copy of the report within 60 days. It must inform them of their right to dispute the accuracy of the report directly with the agency.
You should also include the specific reasons for the denial. While the FCRA technically requires only the above elements, providing reasons is considered a best practice and is required in some states. Reasons should be factual and objective: credit score below minimum threshold, insufficient income, prior eviction, etc.
Common Mistakes Landlords Make
The most common mistake is simply not sending the notice. Many landlords reject applicants and move on without realizing they have a legal obligation. Other frequent errors include sending the notice too late, omitting the consumer reporting agency information, failing to include the applicant's rights, using vague reasons (did not meet our standards) instead of specific ones, and skipping the pre-adverse action step entirely.
Each violation can result in statutory damages of $100 to $1,000 per applicant, plus actual damages and attorney fees. Class action suits against landlords with systematic FCRA violations can result in significant liability.
Automating Adverse Action Compliance
Screening platforms like TenantFort can generate FCRA-compliant adverse action notices automatically. When you deny an applicant, the system generates the correct notice with all required elements, the specific denial reasons tied to your screening criteria, and the consumer reporting agency information. This eliminates the risk of accidentally omitting required disclosures or missing the notice entirely.
Frequently Asked Questions
What happens if a landlord does not send an adverse action notice?
The applicant can sue under the FCRA for statutory damages of $100 to $1,000, plus actual damages and attorney fees. In cases of willful noncompliance, punitive damages are also available. Pattern violations can lead to class action suits.
How soon after denying a tenant must you send the notice?
The FCRA does not specify an exact timeframe, but the notice should be sent promptly — within a few business days of the decision. Best practice is to send the pre-adverse action notice immediately and the final notice after a 5-business-day waiting period.
Do I need to send an adverse action notice if I did not pull a credit report?
No. Adverse action notices are only required when the decision is based on information from a consumer report obtained from a consumer reporting agency. If you made the decision based solely on the application itself or your own research, no notice is required under the FCRA.
Can a tenant dispute the information in their report?
Yes. The FCRA gives consumers the right to dispute inaccurate information with the consumer reporting agency. The agency must investigate within 30 days. If errors are found and corrected, you should reconsider the application based on the updated report.