Adverse Action Notice Template: Best Practices Guide

The government has measures in place to protect consumers from unfair practices. When someone gets a credit or a rental application denial, they're entitled to a notice explaining why. This notice must meet specific requirements set by the appropriate federal enforcement agency, and landlords must follow this legal requirement when turning down a potential tenant.

This article provides details on Adverse Action Notices for landlords. You'll learn why you need them, what information they should contain, and how to write them effectively. The good news is there's a way to automate this process, eliminating worries about legal compliance, appropriate wording, and following all the rules.

We'll explore both automated and manual options with practical tips and a useful template. This guide will help you understand Adverse Action Notices, and you'll learn how to protect your business while treating applicants fairly.

Importance of Adverse Action Notices

Adverse Action Notices are formal communications required when a decision negatively affects an individual based on consumer report information. These notices must include specific details, such as the consumer reporting agency used and the individual's rights under the Consumer Credit Protection Act (CCPA).

Examples of use cases include the following:

• Employment: Denying a job application or promotion due to a background check or credit report provided by a consumer reporting agency.
• Credit: If credit applicants apply to a bank or lending organization and do not receive approval for a credit card or loan due to information in a credit report.
• Insurance: Sometimes, companies may adjust premiums or deny coverage due to details found in a consumer report.
• Rental housing: If landlords reject a rental application, require a higher deposit, or alter lease terms based on credit or background information from a consumer reporting agency.

These examples highlight why it's important to understand the legal framework of Adverse Action Notices.

Federal laws

Landlords should be aware of the various federal and state laws and agencies that govern Adverse Action Notices, including the following:

• Equal Credit Opportunity Act (ECOA): This law prohibits discrimination in credit transactions based on factors like race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. It requires landlords to provide a reason for any adverse action taken on a credit application.
• Fair Credit Reporting Act (FCRA): This law regulates the collection, use, and disclosure of consumer credit information. It requires entities that use credit reports to provide Adverse Action Notices to individuals. For landlords, there are specific requirements, like getting an applicant's consent before you pull a credit report.

State laws

If you deny a rental application, be aware that some states have specific requirements for Adverse Action Notices beyond federal regulations. While laws vary by state, here are two key considerations:

• Timeline for notification: There may be specific deadlines for informing applicants of denial. For example, in Oregon, landlords must provide written notice of denial within 14 days of receiving the application.
• Content requirements: Some states may mandate that the Adverse Action Notice include specific information beyond the federal requirements.

What should be in an Adverse Action Notice?

Your notice should include the following key elements:

• Decision explanation: State that you are denying the rental application or plan to alter agreement terms due to information found in a credit report or tenant screening report.
• Specific reason(s): Provide a specific reason for the adverse action, whether it relates to credit history, criminal background, eviction history, or other factors considered during the screening process.
• Credit reporting agency information: Include the name, address, and telephone number of the credit reporting agency or tenant screening company that provided the report used in making the decision. This ensures the applicant knows where the information came from.
• Statement of non-involvement: Explain that the consumer reporting agency played no part in making the adverse decision and cannot provide the reasons for the decision.
• Applicant’s rights: Inform the applicant of their rights under the Fair Credit Reporting Act. This includes their right to receive a free copy of the credit report from the reporting agency within 60 days of receiving the notice. They also have the right to dispute the accuracy or completeness of any information in the report.
• Credit score disclosure: If you used the applicant's credit score in the decision-making process, the notice should include their score and the key factors that adversely affected the score.
• Contact information: Provide contact details for the landlord or property manager, allowing the applicant to ask questions or seek clarification regarding the adverse action.
• State-specific disclosures: Include any additional disclosures required by state or local laws, which can vary depending on the jurisdiction.

Sample notification template

Below is a detailed sample of an Adverse Action Notice that you can use as a template. Be sure to customize this for your specific circumstances and legal situation.

[Your company name]

[Your company address]

[City, state, zip code]

[Phone number]

[Email address]

[Date]

[Applicant’s name]

[Applicant’s address]

[City, state, zip code]

Subject: Adverse Action Notice

Dear [applicant’s name],

Thank you for your recent rental application with [your company name]. After careful consideration, we regret to inform you that we cannot proceed with your application based on information obtained from your consumer report.

Reason for adverse action

The adverse action is due to the following reason(s):

[Specific reason related to the consumer report (e.g., credit history, criminal background, rental history, etc.)]

Consumer reporting agency information

The information from the following consumer reporting agency influenced the decision:

[Name of consumer reporting agency]

[Agency address]

[City, state, zip code]

[Phone number]

[Website]

Please note that the consumer reporting agency listed played no part in this adverse action decision and cannot provide specific reasons for it.

Your rights under the Fair Credit Reporting Act (FCRA)

You have certain rights under the Fair Credit Reporting Act (FCRA), including the following:

1. Right to obtain a free copy of your report: You have the right to obtain a free copy of your consumer report from the consumer reporting agency mentioned above if you request it within 60 days of receiving this notice.
2. Right to dispute inaccuracies: If you believe the information in your consumer report is inaccurate or incomplete, you have the right to dispute it directly with the consumer reporting agency. They are required to investigate your claim and correct any inaccuracies.

How to obtain a copy of your report

To obtain a free copy of your consumer report, you can contact the consumer reporting agency directly using the contact information provided above.

Next steps

If you believe that the decision relies on incorrect or incomplete information, or if you have any questions regarding this notice, please contact us within 10 business days of receiving this letter at [your contact information, e.g., phone number, email address].

We understand that this news may be disappointing, and we encourage you to take advantage of your rights under the FCRA to ensure the accuracy of your consumer report.

Thank you for your interest. We wish you the best in your future endeavors.

Sincerely,

[Your name]

[Your title]

[Your company name]

Sending Adverse Action Notices

The landlord or property manager responsible for the rental decision must provide and send the adverse action letter as soon as possible. This applies to all adverse actions related to rental applications, including the following:

• Denial of rental application: If you deny a rental application, you must immediately send an Adverse Action Notice.
• Requesting a higher security deposit: You may decide to approve the tenant despite their credit bureau report but ask for a higher security deposit. This requires notice since you are asking for different terms based on the potential tenant's credit score.
• Requiring a co-signer: There may be situations when you ask the applicant to find a co-signer because you have concerns about their present credit obligations or other credit history details. In this case, you must also send an Adverse Action Notice.
• Consumer report information: Any other circumstances wherein you offer different terms to the prospective tenant because of their credit score, like shorter lease terms or other restrictions, require an adverse action letter.

Send the notice directly to the applicant. If multiple applicants applied, each should receive their own Adverse Action Notice, verifying that all parties know the decision and its reasons.

You can deliver notices via mail or email. However, it's a best practice to use mail or certified mail. The method you choose should ensure that the applicant receives the notice in a timely manner, and you should keep a record of the delivery for legal compliance.

A common question among landlords is whether an email is sufficient for sending an Adverse Action Notice. For instance, Reddit user LelandCorner asked the following in the r/Landlord subreddit.

"We told them in an email why they got rejected. They wanted in writing and signed that applications were reviewed. What is your take? I thought email as in electronical response is good enough?"

Opinions on this matter vary. Another user responded:

"I never use e-mail for legal communication. In fact, my lease specifically calls e-mail and text "void". Way too open to fraud and scam. ("I never got your e-mail." "I sent you an e-mail. You're lying that you didn't get it!") However, as quoted above, e-mail is acceptable to the law, unless your local jurisdiction disallows it."

While email is a form of written communication and is generally acceptable by law, it may not always be the best choice for legal purposes. Some applicants may request a more formal, signed document for their records. Additionally, applicants can dispute that they received the email, potentially creating legal complications.

Recordkeeping for Adverse Action Notices

You should keep records of your notices and communications for the period specified by local laws. This typically includes copies of the notice and any supporting documentation. Federal and state laws generally require saving records for two years. Maintaining these records helps protect against potential disputes or audits.

After you issue an adverse action letter, you should dispose of any records containing personal information, such as credit reports or rental applications. This includes both physical documents and electronic files. Appropriate disposal methods include the following:

• Shredding: For physical records, shredding is reliable for confirming you have destroyed sensitive information.
• Deleting and Overwriting: Simply deleting files may not be enough for electronic records. Verify that files are securely erased and overwritten so no one can recover them.
• Third-Party Services: Consider using certified document destruction services that specialize in securely disposing of sensitive information. These services can provide certificates of destruction, which may be helpful for demonstrating compliance.

Reducing the need for Adverse Action Notices

While adverse action letters are a legal requirement if you need to deny a potential renter due to their credit report, proactive landlords can implement strategies to minimize their frequency. Refining your tenant screening process and setting clear expectations upfront may help you decrease the number of applicants who don't meet your criteria. This approach saves time and resources and helps maintain positive relationships within the rental community.

Pre-screening applicants

Before diving into the full application process, conduct an initial pre-screening to verify that applicants meet basic criteria. This approach can save time and reduce the need to send notices.

Landlords on Reddit's real estate investing and landlord forums shared strategies offering insights into tenant selection and optimizing property management. Here are some of their ideas.

In the r/landlord subreddit, Reddit user soylentgreen2015 shared a pre-screening strategy:

"Consider tightening up who actually gets an application so you don't have this issue. My rentals are only listed online. I give a rough area for where the unit is. I don't want people dropping in out of the blue. In my online ad, I say the following info must be provided for me to consider offering a viewing: # of ppl to be occupying the unit, when they're looking to move in, and their source of income. I won't run afoul of any discrimination accusations with that wording where I am."

They further explained:

"I live in an area where there's a housing shortage. The tenant basically needs to sell to me 'why' I should rent to them. If I get barely any info, they don't get a viewing, and they only get a formal application at viewings. I probably give one viewing for every ten people that message me online. I get tons of people messaging me whose situation is clearly incompatible with the size/cost of units I rent out. I don't waste my time with them."

This approach helps filter out incompatible applicants early in the process, reducing the likelihood of having to send Adverse Action Notices later.

Setting clear requirements

Be clear on your minimum credit score, income, and background check requirements upfront so only qualified applicants apply. However, it is a good idea to look beyond the initial numbers.

Reddit user difiCa shared their approach to credit score requirements in the r/realestateinvesting subreddit:

"We publish a 600 minimum, but also look at the actual credit report. 600 because of limited use of credit, medical debt or some really minor collection amount is different than someone who has a 600 but carries a ton of credit card debt, etc."

Automated screening and Adverse Action Notices

Property managers often face time constraints and compliance challenges when processing rental applications. Manual screening and notice generation can lead to delays and potential oversights.

Azibo's comprehensive property management platform offers tenant screening and automation of Adverse Action Notices. This technology-driven approach allows landlords to process applications more quickly and consistently. Reducing manual tasks also helps minimize errors and maintains compliance with fair housing laws.

Easily collect applicant information

Azibo's online rental applications automate the collection of tenant information like personal details, rental history, and income/employment data. The platform streamlines the process by enabling document uploads and providing instant notifications when you receive new applications. This automation saves time, reduces errors, and gives you all the necessary information without chasing applicants for missing details.

Conduct thorough tenant screenings

Access detailed reports covering credit checks, identity validation, and nationwide criminal and eviction history. This automated screening process helps landlords identify high-quality tenants. By automating these checks, you can make decisions faster and more consistently, minimizing risks to your property without spending hours on manual background checks.

Automate Adverse Action Notices

Azibo's platform enables landlords to issue adverse action letters automatically when denying a tenant. Landlords simply choose the reason for denial, and the platform automatically generates the notice and sends it to the applicant.

This automation supports compliance with legal requirements while providing clear reasons for the denial, such as poor credit or background check results. You don't have to worry about how to write the letter or the best way to send it. Azibo takes care of that process for you.

Stay compliant with document storage

Keep records of applications, screening reports, and adverse action notifications in Azibo's centralized electronic location. This automated storage system securely stores your data and makes it easy to find information when you need it.

Centralizing documentation keeps you stay organized and gives you peace of mind, knowing all your documents are easy to find and readily available if you need them.

Adverse action letter template

With the right approach, handling Adverse Action Notices can be straightforward, and you can make this legal requirement a smooth part of your rental process. Understanding these notices helps you build trust with potential tenants and protect your business.

Use consistency and clarity regardless of whether you automate or handle notices manually. Well-written adverse action notifications showcase your professionalism and commitment to fair housing practices. Keeping up with these processes helps you run a transparent, efficient operation that stands out in the market.

Adverse action letters serve multiple purposes since they fulfill legal obligations, provide valuable feedback to applicants, and create a paper trail for your records. Each notice you send is an opportunity to refine your screening criteria and improve your overall tenant selection process. As you incorporate these practices, you may find that they lead to better-quality applications over time.

Put what you've learned here into practice. Your future self will appreciate the smoother operations and reduced worries. Leveraging automated systems for Adverse Action Notices can help you stay compliant while saving time and reducing errors.

Adverse Action Notice template: FAQs

What is a FCRA adverse action letter?

An FCRA adverse action letter is a notice landlords must send to applicants when their rental application is denied or modified based on information from a credit report. It explains the reasons for the decision, includes details about the credit reporting agency, and informs the applicant of their rights to dispute the report.

What does it mean when you get an Adverse Action Notice?

You receive an Adverse Action Notice if you get denied credit or a landlord rejects your rental application based on your credit or background check. The notice explains why and how you can dispute any errors in your report.

What do you write in a pre-adverse action letter?

Include a notice of potential adverse action, a copy of the consumer report, and a summary of rights under the FCRA.