What Is an Adverse Action Notice?
An adverse action notice is a written communication you're legally required to provide to a rental applicant when you take a negative action — denial, higher deposit, less favorable terms — based in whole or in part on information from a consumer report. Consumer reports include background checks, credit reports, and eviction history searches.
This isn't a courtesy — it's a federal requirement under the Fair Credit Reporting Act. Every landlord who uses screening reports to make rental decisions must comply, whether you manage one unit or one thousand. The requirement applies equally to individual landlords, property management companies, and real estate agents screening on behalf of an owner.
The purpose of the notice is to give the applicant transparency into why they were denied and the opportunity to review and dispute the information that led to the decision. Consumer reports can contain errors, and the adverse action process is the applicant's main mechanism for catching and correcting those errors.
When Is an Adverse Action Notice Required?
You must provide an adverse action notice any time you take a negative action based on information from a consumer report. "Negative action" isn't limited to outright denial. It includes denying the rental application entirely, requiring a co-signer based on something found in the report, requiring a higher security deposit than your standard amount, charging higher rent than originally advertised, and offering less favorable lease terms than you would otherwise.
The trigger is the connection between the consumer report and the decision. If you deny an applicant because they told you during the showing that they have seven dogs and your property doesn't allow pets, that's not an adverse action under the FCRA — the decision was based on information the applicant provided, not on a consumer report. But if you deny someone because their credit report shows a pattern of late payments, or because their background check revealed an eviction judgment, you must send the notice.
Common mistake: Many landlords skip the adverse action notice because the denial "seems obvious" or because they verbally told the applicant why they were denied. Verbal communication is not sufficient. The FCRA requires a written notice — delivered in writing, electronically, or at minimum orally with specific required content. Written is always the safest approach.
What the Notice Must Include
The FCRA specifies exactly what an adverse action notice must contain. Missing any of these elements puts you out of compliance.
- The name, address, and phone number of the screening company that provided the consumer report. This is the tenant screening service you used, not your own information.
- A statement that the screening company did not make the adverse decision and cannot explain why the decision was made. This makes clear that you — the landlord — made the decision, and directs any questions about the decision to you rather than the screening company.
- Notice of the applicant's right to dispute the accuracy or completeness of any information in the report with the screening company.
- Notice of the applicant's right to obtain a free copy of their consumer report from the screening company within 60 days of the adverse action notice.
You are not required to explain the specific reasons for the denial in the adverse action notice itself, though some landlords choose to include this information for transparency. Your internal documentation should record the reasons, but the notice is primarily about informing the applicant of their rights regarding the consumer report.
When to Send It
The FCRA doesn't specify an exact deadline for sending the adverse action notice, but the expectation is that it be sent promptly after the decision is made. Best practice is to send the notice within one to three business days of making the denial decision. Waiting weeks or months undermines the purpose of the notice and may be viewed as non-compliance.
Some landlords build the adverse action notice into their application workflow as an automatic step — when a denial decision is documented, the adverse action notice is generated and sent the same day. Many screening services provide templates or automated tools that generate the notice for you, which makes compliance easy.
The Two-Step Process
Some landlords and screening experts recommend a two-step adverse action process, although the FCRA technically only requires the post-decision notice. The two-step approach works like this.
First, after reviewing the screening report but before making a final decision, you send a pre-adverse action notice. This letter informs the applicant that you're considering denying their application based on information in their screening report, includes a copy of the report (or instructions for obtaining one), and gives the applicant a reasonable period — typically three to five business days — to review the report and dispute any inaccuracies before you finalize your decision.
Second, if the applicant doesn't respond or doesn't successfully dispute the information, you send the final adverse action notice with all the required elements listed above.
The two-step process isn't required for tenant screening under the FCRA (it's more commonly associated with employment screening), but it demonstrates good faith, gives applicants a chance to catch errors, and provides additional legal protection for your process.
What Happens If You Don't Comply
Skipping the adverse action notice carries real consequences. The FCRA provides for both statutory damages and actual damages for violations. An applicant who was denied without receiving a proper adverse action notice can file a complaint with the Federal Trade Commission or the Consumer Financial Protection Bureau, sue you in federal or state court, and recover statutory damages of $100 to $1,000 per violation even without proving actual harm.
In cases of willful non-compliance — meaning you knew about the requirement and ignored it — punitive damages and attorney's fees can also be awarded. Class action lawsuits against large property management companies for systematic adverse action failures have resulted in settlements reaching into the millions.
For an individual landlord managing a few units, a single FCRA violation may result in a lawsuit that costs far more in legal fees and damages than the entire annual rental income from the property. Compliance isn't expensive — non-compliance is.
Using Your Screening Service's Templates
Most reputable tenant screening services provide adverse action notice templates or automated tools as part of their service. TransUnion SmartMove, RentPrep, and other major providers offer templates that include all required language and can be customized with the applicant's information and your property details.
If your screening service offers automated adverse action letters, use them. They're designed to comply with the FCRA, they're faster than drafting your own, and they create a documented record that you fulfilled your obligation. If your current provider doesn't offer this, that's worth considering when you compare screening services.
The adverse action notice is one step in a complete, legally compliant screening process. Make sure the rest of your process is solid too — from a consistent application process to thorough background checks and proper Fair Housing compliance.