Understanding Consumer Reports: Key Insights for Agents and Landlords

Understanding consumer reports

What is a consumer report?It’s an important question to ask as a rental real estate agent. Under the Fair Credit Reporting Act (FCRA), you have the ability to pull historical information on a potential tenant that helps you make the best decisions in placing renters.

Consumer reporting agencies provide these reports containing the personal and financial information on prospective tenants. From this, you have insight into an applicant’s qualifications, including potential red flags. Keep reading about the meaning of consumer reports and what to consider when using them.

Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice nor as an endorsement of any particular legal understanding.

What’s a consumer report requirement?

There are three requirements, including a creator, content, and a purpose requirement to meet before the information is a consumer report.

• A Consumer Reporting Agency must generate the report.
• A consumer report includes any written, oral or other communication of any information by a Consumer Reporting Agency (CRA) bearing on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.
• A consumer report’s expected use or collection must establish the consumer’s eligibility for credit or insurance, primarily for personal, family, household, or employment purposes.

Examples of consumer reporting agencies include Equifax, TransUnion, and Experian (known as the National Credit Reporting Agencies), background screeners, and tenant/background screeners.

Information must pertain to a consumer/individual and not entities, corporations, or partnerships. This applies to both private and public data. Consumer reporting agencies do not have direct transactions or experiences with applicants, and information is not on a firsthand basis. CRAs get their information from third parties and thus are not the originating source of it.

What do consumer reports show?

A consumer report typically includes:

• Credit history
• Criminal records (arrests, convictions, and pending cases) that are reportable
• Public records (e.g., bankruptcies, lawsuits, and judgments)
• Rental history
• Employment history (previous and current employers, dates of employment, and job titles)

What isn’t a consumer report?

Knowing what a consumer report is matters, as does what it is not.

Reports including personal knowledge or firsthand interaction, reports made among persons under common control, and reports other than credit (including skip tracing, law enforcement, dating, and laboratory reports) are not consumer reports.

Information collected from internet providers, which collect “header data” consisting purely of identifying information from sources like public records, mailing lists, surveys, public social media profiles, etc., are also not consumer reports.

Information excluded from consumer reports further includes:

• Arrest records more than 7 years old
• Items of adverse information, except criminal convictions older than 7 years
• Negative credit data, civil judgments, paid tax liens, and/or collections accounts older than 7 years. Time limits apply only to “negative” information about consumers, as favorable information never goes stale. Time limits apply only to CRAs.
• End-users can use “stale data” (older than 7 years) if they obtain information from a source other than a CRA.

How to obtain a consumer report for tenant screening

You must follow these steps when pulling consumer reports in tenant screening:

• Get written consent from the application per the FCRA.
• Include disclosures to the applicant about the consumer report, its purpose, and their rights.
• Have a permissible purpose for the report, which would be to assess their qualifications as a renter.
• Choose a reputable, secure, and compliant tenant screening service.
• Gather the renter’s information through an application form; you’ll need their full name, date of birth, Social Security number, and current and former addresses.
• Submit the information through your screening portal.

Understanding the FCRA compliance

FCRA compliance is a mandate when pulling consumer reports. The steps above highlight your legal requirements, the most important being written consent and clear disclosure. You must also have a permissible purpose for using it for tenant screening, and you may not use it for any other reasons.

• Written consent: You must state the explicit reason for the consumer report, which is for rental evaluation. Consumers must sign that they agree; you can manage all this electronically.
• Disclosure: Including a comprehensive and clear disclosure is also part of FCRA compliance. It should detail what information you’ll collect and the tenant’s rights under the FCRA.

The consent and disclosure must be separate documents within the rental application.

Common misconceptions about consumer reports

In understanding the meaning of consumer reports, it’s crucial to clear up any misconceptions. Here are some examples.

• Consumer reports are from the government. CRAs are not government entities. They are third parties that retrieve information from government agencies and private companies.
• Consumer reports should be the only information you use to make rental decisions. Think of them as one resource in the decision-making process. They are most helpful in gauging risk.
• Pulling consumer reports is tedious. It’s not when you gather information and consent electronically and use a streamlined platform.
• Consumer reports are always accurate. Inaccurate, incorrect, or outdated information could show up on a report. That’s why consumers have the right to dispute any data.

How to interpret consumer reports effectively

Now that you’ve learned what a consumer report is, the next consideration is how to interpret it. Here are some useful tips.

• Consider all aspects of the report and how they create a complete picture of an applicant; don’t rely solely on the credit score.
• Determine their financial risk based on information related to accounts, payment history, collections, debt, and employment.
• Look for patterns of financial red flags like late payments or past-due accounts.
• Contact previous landlords found in the rental history to verify and validate information.
• Review criminal history, but be aware of the rules of the FCRA and Fair Housing Act.
• Ensure you’re following any state or local requirements about using consumer reports in tenant screening.

Impact of consumer reports on rental decisions

A consumer report is one piece of the applicant’s story. It provides vital information about their ability to pay rent on time every time. You’ll encounter many scenarios where consumer reports sway your decision. If they are positive, you’ll feel confident in approving their application. Negative information influences this, as well. You’ll have to weigh the information against other findings.

For example, a lower credit score isn’t always an indicator of financial instability. It may be the result of the person not using credit or just starting to do so. Younger applicants may have little information here. If you can verify their employment and income, the credit score may not matter too much.

As for the negatives, a history of financial volatility, evictions, or concerning criminal activity can be reasons to deny the applicant. If you do so, you’ll need to follow the rules around adverse action notices. Adverse action applies to any denials resulting from information from the consumer report. It would also cover things like requiring a higher deposit in response to a lower credit score.

Privacy and security considerations

You must also consider privacy and security in creating consumer reports. The FCRA includes information about securing personally identifiable information (PII). That’s why it’s crucial to use a secure platform for applicants to input their PII. Only those who need access to the report should see it. You must safeguard this data at all times.

Many states have specific laws about collecting and protecting PII, and you must provide a privacy policy detailing how you’ll use and dispose of the information.

Another part of security is disposal. Once you’ve reviewed it and made a decision, you must destroy any paper copies and delete electronic data.

Consumer report resources

These articles provide further information about what a consumer report is and the regulations under the law.

1. Fundamentals of the FCRA
2. Industry players under FCRA
3. Accuracy and reasonable procedures
4. FCRA permissible purpose
5. Adverse action notification
6. Reinvestigation, disclosures, disposal of consumer information
7. A summary of consumer rights under FCRA
8. FCRA litigation
9. State versions of FCRA and FCRA California

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