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Screening tenants is one of the most important steps a landlord takes before signing a lease. It protects your property, helps ensure timely rent payments, and keeps your investment running smoothly. But when screening reveals red flags and you decide not to move forward with an applicant, there’s a legal step that often gets overlooked: the adverse action letter.
This document isn’t just a courtesy. It’s a federal and state requirement that protects both the applicant and the landlord. Sending an adverse action letter correctly keeps you compliant and reduces the risk of discrimination or Fair Credit Reporting Act (FCRA) violations.
Let’s walk through when these letters are required, what they need to include, and how California landlords can handle them properly.
Key Takeaways
Landlords must send an adverse action letter whenever a decision is based on information from a consumer report.
The Fair Credit Reporting Act and California Civil Code both outline specific disclosure requirements.
Each letter must identify the reporting agency, clarify applicant rights, and document the landlord’s decision.
Proper recordkeeping protects landlords from compliance risks and tenant disputes.
Understanding Adverse Action Letters
An adverse action letter is a formal notice landlords must send when a rental application decision is influenced by information found in a consumer report. That report could include credit data, rental history, criminal background, or eviction records.
In simple terms, “adverse action” refers to any decision that negatively affects an applicant. This includes:
Denying an application.
Approving an application but requiring a larger deposit.
Adding a co-signer or guarantor as a condition of approval.
Charging higher rent due to screening results.
If the decision is based on findings from a screening report, the applicant must receive a letter explaining that. It’s not the same as a standard denial letter either; it’s a legal disclosure about the use of consumer information in the decision-making process.
When Landlords Must Send an Adverse Action Letter
California landlords are required to send this letter anytime a consumer report affects the outcome of an application. That includes:
Full denials based on credit score, past evictions, or criminal records.
Conditional approvals, such as requiring additional security or a co-signer.
Partial decisions, where one member of a joint application doesn’t meet requirements.
Timing matters. The letter must be sent immediately after the adverse decision is made. Waiting too long or failing to send the notice can put a landlord in violation of both state and federal regulations.
Consider an example: you receive two applications for a unit, and one shows several late rent payments on the credit report. If that information leads you to select the other applicant, an adverse action letter must go to the rejected applicant. Even though the decision wasn’t based solely on their credit score, the report still influenced your choice, and that triggers the requirement.
Legal Framework: Federal and California Requirements
Landlords in California must comply with two layers of law when it comes to adverse action letters: the Federal Fair Credit Reporting Act (FCRA) and the California Civil Code §1785.20.5.
Federal FCRA Requirements
The FCRA requires landlords to:
Disclose that a consumer report was used in the decision.
Provide the name, address, and phone number of the consumer reporting agency.
Clarify that the reporting agency didn’t make the rental decision and can’t explain the reasoning.
Notify the applicant of their right to obtain a free copy of the report and dispute inaccuracies within 60 days.
California-Specific Requirements
California adds its own rules:
Applicants have the right to know the reason for denial and to request a copy of their credit report.
Landlords must include the name and contact information of the credit reporting agency and retain documentation showing the adverse action notice was provided.
California law also allows applicants to request a copy of the report at the time it’s obtained, giving them more transparency in the process.
Together, these laws promote fairness and accountability, ensuring every applicant understands the basis for the decision and has the opportunity to correct any errors.
What to Include in an Adverse Action Letter
A compliant adverse action letter should be straightforward and factual. The following elements are essential:
Applicant’s name and the date of the decision.
A clear statement explaining that adverse action has been taken based on information from a consumer report.
Identification of the screening company, including its full name, address, and phone number.
Statement of applicant rights under the FCRA and California law, including the right to obtain a copy of the report and dispute inaccuracies.
Clarification that the screening company did not make the decision.
Optional factual reason for denial or conditional approval, such as “Credit score did not meet minimum requirement.”
The letter should be professional, concise, and free of personal commentary. Avoid explaining or defending the decision—it’s about disclosure, not justification.
How to Send the Letter
There are several acceptable ways to send an adverse action letter, but documentation is key.
Physical mail: The most reliable and compliant option. Sending a hard copy ensures proof of delivery and creates a clear record.
Email: Allowed if the applicant has consented to electronic communication. Be sure to request acknowledgment of receipt.
Screening platform automation: Many property management systems or tenant screening tools include built-in adverse action notifications that meet FCRA requirements.
Whatever method you choose, keep a copy of the letter and proof that it was sent. Store these records for at least two years, in case of disputes or audits.
Common Mistakes Landlords Should Avoid
Even experienced landlords make small errors that can lead to compliance issues. Here are a few to watch for:
Forgetting to send a letter for conditional approvals.
Providing incorrect contact information for the screening company.
Including subjective opinions in the letter (e.g., “You seemed untrustworthy”).
Using inconsistent screening standards that could suggest discrimination.
Ignoring the timeline—letters must be sent promptly.
Failing to document or retain copies of the notice.
Following a consistent, systemized screening and notification process helps avoid these pitfalls.
FAQs
What is the difference between a denial letter and an adverse action letter?
An adverse action letter is required when the decision is based on information from a consumer report. A denial letter may be used when the decision is unrelated to the report, such as lack of income documentation.
Can I send an adverse action letter by email?
Yes, if the applicant consented to electronic communication and you can verify receipt. If not, mailing is the safer choice.
Do I need to send a letter if I just chose another applicant?
If a consumer report influenced that decision, yes. If no screening report was used, a simple non-selection notice is sufficient.
Should I include the reason for denial?
It’s optional but can help with transparency. Keep it factual and neutral—for example, “Applicant did not meet credit score threshold.”
Building Trust Through Compliance and Transparency
Adverse action letters are a small but vital part of a fair and compliant rental process. They protect applicants’ rights, reinforce transparency, and shield landlords from potential legal issues.
California’s combination of federal and state requirements makes accuracy and consistency especially important. Taking the time to send proper notices shows professionalism and ensures your rental decisions meet every legal standard.
At Advantage Property Management Services, we manage every part of the tenant screening and documentation process, including adverse action compliance. Our systems are designed to protect property owners from costly mistakes while maintaining a fair, transparent experience for every applicant.
When you’re ready to simplify your rental operations and stay fully compliant, our team is here to help.
