Housing providers that fail to give a clear, stand-alone consumer’s rights disclosure and obtain written consent before running a credit report routinely lose in court and end up paying $10,000 per applicant. Additionally, applicants must also receive a copy of the report (in person, by mail, or email), within seven days after the report is run . You may not have ever heard of these requirements or heard about this type of litigation before, but it is gaining popularity here in California. We are going to give a brief background of the two laws that you need to comply with; why these lawsuits are trending; and best practices that will help minimize your exposure to these types of lawsuits.
ICRAA?
The Investigative Consumer Reporting Agencies Act (ICRAA) was established in 1975. It is a California law that regulates the use of investigative consumer reports, which include details about a person’s character, reputation, or lifestyle. It applies to background checks for employment, housing, and other purposes. Violations of the ICRAA can result in statutory damages, actual damages, and legal fees. The law has its own special requirements, in addition to the federal requirements under the Fair Credit Reporting Act (FCRA).
FCRA?
The Fair Credit Reporting Act (FCRA) is a federal law that was enacted in 1970. It provides consumer protections for applicants by regulating how credit reporting agencies (CRAs), data furnishers, and users of consumer reports (employers, property owners and managers) handle and disseminate personal credit information. To ensure compliance with these regulations, enforcement is carried out by multiple federal agencies, primarily the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). These agencies oversee adherence to the FCRA, investigate violations, and impose penalties on organizations that fail to comply with the law. Recently, TransUnion and other large tenant screening companies have paid out millions and millions of dollars for not complying with the FCRA.
Why Are These Lawsuits Trending?
Connor v. First Student, Inc. (2018) is the landmark case that involved the use of outdated consent forms for background checks by an employer. The California Supreme Court ruled that the ICRAA applies even when other laws like the federal FCRA also apply. This case affirmed the ICRAA’s broad applicability in California and clarified that it could overlap with other regulatory frameworks (FCRA), making businesses more vulnerable to lawsuits. Although this case involved an employment background check, it established case law for tenant screening as well.
Easy Money
In a 2023 ruling, $10,000 was awarded to two rental applicants, even though they had withdrawn their rental applications (LOUIE BUSANE, et al. vs WSH MANAGEMENT, INC.). In most cases however, rental applicants are able to prove damage because they were denied housing, and applicants are routinely awarded $10,000 judgements.
Best Practices for ICRAA Compliance in Tenant Screening
To minimize your exposure to needless lawsuits and comply with both the ICRAA and the FCRA, we offer the following list of best practices for landlords and property managers when screening tenants:
- Use Clear Written Disclosures
Ensure that the written disclosure provided to applicants is clear, concise, and separate from other documents. The disclosure should include the following elements:
- explains that an investigative consumer report will be obtained
- describes the nature and scope of the investigation, including the types of information that will be gathered (e.g.: rental history, employment, criminal records, credit)
- provides information on the consumer’s rights, including their right to request additional details about the nature of the investigation and obtain a copy of the report
This disclosure must be separate from other documents, such as the rental application (Form 100A), to ensure it is conspicuous and easily understood by the applicant. AOA has a new form, Form 100D, which provides the necessary disclosures for both the ICRAA and the FCRA.
- Obtain Written Consent
Always obtain explicit, written consent from the applicant before requesting an investigative consumer report. This consent should be documented and stored with the applicant’s application materials. Without this step, obtaining a report could result in a violation of the ICRAA and FCRA (authorization is included in Form 100D).
- Provide Applicants with Copies of Reports
CA CC 1950.6 now requires that you provide ALL applicants with a copy of their credit report within seven (7) days of receiving it. This transparency helps build trust and reduces the likelihood of disputes.
- Issue Adverse Action Notices Promptly
If you make an adverse decision based on the investigative consumer report, provide the tenant with an adverse action notice immediately. This notice should include the contact information for the company that produced the report and instructions on how the applicant can dispute inaccuracies.
- Keep Accurate and Updated Records
Maintain detailed records of all disclosures, consents, reports, and adverse action notices related to tenant screening. Proper documentation can help defend against legal challenges and demonstrate compliance with the ICRAA and the FCRA.
- Use AOA Tenant Screening
AOA strives to provide our members with FCRA-compliant reports that give you the best possible data in the industry from the industry’s most-trusted sources.
- DoubleWhammy Eviction – Because we know that every data provider can miss important facts, our DoubleWhammy Eviction search includes eviction reports from two different companies that we vetted and tested against others.
- Live Investigator Search – Instant criminal searches have slowly lost their usefulness over the years. With the enactment of AB 1076, the Clean Slate Act, in 2023, it is nearly impossible for machines to search these systems and provide accurate information because of the removal of personal identifying information (PII). The Live Investigator Search is done by hand, and includes searches of several silos of information that are not accessed by traditional instant criminal searches. The search is based on the addresses generated from a skip trace that we run on your applicant.
- Income Verification Report – AOA provides a process that allows for the immediate and secure verification of an applicant’s bank account information. This technology is commonly used in financial services, lending, and other industries that require quick confirmation of a user’s banking details. The service then verifies the account details directly with the bank, confirming the existence of the account, its balance, and recent transaction history. We use secure connections and protocols to protect your applicant’s sensitive financial data.
- $8.50 Credit Reports – You can choose from Experian and TransUnion, with either the FICO Score or the Tenant Risk Credit Score. The TenantRisk Score uses a different formula and different data points to determine its score, putting more weight on residential payment behavior. Studies show that the TenantRisk Score is 15 percent more predictive of a possible eviction than a typical credit score – that’s a big difference!
- Check City and County Codes for Additional Requirements
In addition to complying with the ICRAA, landlords should be aware of any city or county-specific regulations that may apply to tenant screening. Some local jurisdictions have additional rules regarding disclosures, tenant rights, or the type of information that can be used in background checks. Regularly reviewing local codes ensures that landlords stay compliant with all applicable laws and avoid potential legal issues arising from overlooked local regulations.
- Attend AOA Seminars
Housing providers and property managers can attend Apartment Owners Association (AOA) seminars to stay informed about tenant screening best practices and legal updates. These seminars offer valuable insights into state and federal regulations, including ICRAA and local laws, and provide practical tips for maintaining compliance. By participating in educational events, landlords can keep up with evolving legal requirements and improve their tenant screening processes.
In conclusion, compliance with tenant screening laws such as the FCRA and ICRAA is essential for housing providers to avoid costly lawsuits, which can easily result in massive financial losses. By following best practices—such as providing clear disclosures, obtaining written consent, and promptly issuing reports and adverse action notices—landlords can protect themselves from legal challenges while ensuring transparency and fairness in the tenant screening process. Staying informed and vigilant is the key to minimizing exposure to these increasingly common lawsuits.
Jeff Faller is the President of the Apartment Owners Association of CA, Inc.