New Federal Law Requires Adverse Action Notices to Include Credit Scores

The federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires users of consumer reports, beginning on July 21, 2011, to also provide credit scores to prospective tenants if the score was used in taking adverse or unfavorable action against the tenant. Adverse action notices are provided to rental applicants who, after the tenant screening process, are denied or conditionally accepted (that is, subject to a cosigner or higher deposit) based on information in a consumer report.

Currently, the Fair Credit Reporting Act (FCRA) and Local Law 2 of 2010 require that an adverse action notice include only notice of the applicant's right to receive a free copy of his or her consumer report. Currently, the notice must include:

• The name, address, and telephone number of the agency that supplied the consumer report, including a toll-free number if the agency maintains files nationwide.
• A statement that the agency that provided the report did not make the decision to take the adverse action and cannot give the specific reasons for it.
• A notice of the individual's right to dispute the accuracy or completeness of any information furnished by the agency and of the individual's right to request a free copy of his or her credit report from the reporting agency within 60 days of the notice of adverse action.

As of July 21, the Dodd-Frank Act stipulates that the credit score itself must be included if one was used to make an adverse decision. According to a statement by Colorado Sen. Mark Udall, a sponsor of the provision requiring credit score disclosure, “It will lead to more transparency in the housing market. If a renter is denied housing because of their credit score, the landlord or rental agency will be required to give them their credit score for free.”

The federal FCRA already gives consumers a free copy of their credit report from each of the three credit-reporting bureaus annually. However, those reports don't include a FICO score, which is what mortgage banks and some owners use to determine whether to grant a lease. Consumers may purchase their FICO scores separately. Also, in New York, some owners run a National Risk Model score rather than a FICO score to gauge the probability that prospective tenants would pay their rent on time. Those scores also would have to be provided under the law if used to deny a rental application.