Property management & leasing
Adverse Action Notice: Definition & Example
What Is an Adverse Action Notice?
An adverse action notice is a disclosure required by the Fair Credit Reporting Act when a landlord, lender, or employer takes a negative action based in whole or in part on a consumer report.
What does adverse action notice mean?
Under the FCRA, if a landlord denies an application, requires a co-signer or larger deposit, or charges higher rent because of information in a consumer report, such as a credit report or tenant screening report, the landlord must give the applicant an adverse action notice.
The notice must include the name, address, and phone number of the consumer reporting agency that supplied the report, a statement that the agency did not make the decision, and the applicant’s right to a free copy of the report within 60 days and to dispute its accuracy. If a credit score was used, the score and related details must also be disclosed.
Separate rules apply when information comes from sources other than a consumer reporting agency. A landlord’s own decision criteria and documents it collects directly are handled differently, which is why it matters whether a screening tool is a consumer report.
Adverse action notice example
A landlord approves an applicant only on the condition of a guarantor because the credit report shows several collections accounts. Because the condition is based on the credit report, the landlord sends an adverse action notice that names the credit bureau and explains the applicant’s right to a free copy of the report and to dispute errors.
Related terms
- Fair Credit Reporting ActThe Fair Credit Reporting Act (FCRA) is a federal law that regulates how consumer reporting agencies collect and share consumer information and how others use consumer reports.
- Consumer Reporting AgencyA consumer reporting agency (CRA) is a company that regularly assembles or evaluates information about consumers and furnishes consumer reports to third parties for decisions about credit, insurance, employment, or housing.
- Tenant Screening ReportA tenant screening report is a consumer report a landlord orders from a screening company, usually combining credit, eviction, and criminal record information about a rental applicant.
- Permissible PurposePermissible purpose is a legally valid reason under the Fair Credit Reporting Act for obtaining someone’s consumer report, such as evaluating their application for credit, insurance, employment, or housing.
- Credit ScoreA credit score is a three-digit number, usually from 300 to 850, that estimates how likely a person is to repay debt based on the information in their credit report.
Adverse action notice FAQ
- When is an adverse action notice required for renters?
- When a landlord denies an application or sets less favorable terms, such as a higher deposit or a required co-signer, based at least in part on information in a consumer report.
