Dodd-Frank bill requires adverse action letters

The property is ready to be occupied, marketing is complete, and now you are receiving multiple inquires. At the first showing you receive two applications and it looks as though you’ll fill the unit quickly but remember only one party can be offered the property and after you have evaluated both applications – pulling credit information, confirming employment status and reviewing past rental history – it is clear that only one party meets your qualifications. So is it as simple as offering the rental to the qualified party and just letting the other party know that they didn’t get the unit?

Not so fast. As of July 21, 2011 the Dodd-Frank bill requires you to provide the consumer with a Score Disclosure letter or an Adverse Action letter if you decline their application or impose additional conditions (such as a higher deposit) in order to accept the application. This law was enacted toward creditors but does include “Property Managers” who deal with making decisions based on credit scores for potential tenants. According to the Fair Credit Reporting Act (FCRA) creditors are required to issue an adverse action notice containing the name of the credit reporting agency, notice of the consumer’s right to request a free credit report, and notice of the consumer’s right to dispute the accuracy of the report’s content. The Equal Credit Opportunity Act (ECOA) requires creditors to provide consumers with the specific reasons for a denial, or a notice informing a consumer of the adverse action taken and his or her right to request a statement of specific reasons from the creditor.

Now I’m not a fan of the Frank-Dodd law as I personally believe that it creates more expenses for business owners and like most government imposed safety measures will actually end up hurting the very parties that it was created to protect. In this case it does bring to light the importance of having written rental guidelines and rental qualifications which are posted in an accessible area (i.e. your company website) for all potential applicants to see. An example would be a minimum acceptable FICO score or monthly income ratio. Having this company standard will assist in your decision making process and bring credibility to your decision if challenged. Furthermore it will help avoid larger issues such as discrimination claims and will provide applicants who were denied a rental an opportunity to understand the reasons why.

Many credit bureau companies are now offering adverse action letters (for an additional fee) to help property management companies comply with the new rules and regulations. Our company has been issuing them since 2008 as we viewed it as good business practice. I guess the positive would be that any opportunity to limit your legal exposure is a good one. So remember an “I’m sorry you didn’t get the property” should now be follow with an “Adverse Action” letter.