What are the Adverse Action Requirements for Employment or a Rental Applicant?

Updated: Apr 26

As an employer who performs background checks for employment, you will often get negative reports on some candidates. This is also the case with landlords who perform background checks on tenants before renting them their premises.

You may find conflicting reports or criminal record history on applicants, or even a failed drug test.


Providing an applicant based disclosure within 30 days

Such findings mostly influence your decision to reject an individual’s application or dismiss them when you already had them in.


Before making such decisions, you need to know there are set guidelines and regulations.

According to federal law, it is your responsibility to inform the candidate about your decision to deny them the opportunity or dismiss them if employed through a document called an adverse action notice.


This article addresses what is required on an adverse action notice for employment or rental applicants. It also talks about the rights of a candidate who has been handed the notice.

Adverse Action is not a new term. It has been mostly associated with lenders and credit institutions that provide an adverse action notice to their loan applicants if their credit score is the reason their loan application is denied.


The Fair Credit Reporting Act (FCRA) governs the adverse action notice in these institutions, employers, and landlords.


As an employer, finding yourself on the wrong side of the FCRA could cost you financial penalties and lawsuits. The last thing you want for your business is to damage its PR.

provide a consumer credit report within a reasonable amount of time is mandatory for adverse action notices

What is an adverse action for employment?

Concerning background checks, Adverse Action is the decision you make based on the information you have found in the candidate’s background check report. This could mean making any decision that negatively affects their employment. It could be:

● deciding not to move on with their hiring process

● denying them promotion, transfer

● Employment termination

● Suspending an employee

Taking any of the above actions based on information from a background check requires you as an employer to provide the candidate with an Adverse Action Notice.

Steps Needed For Conducting An Adverse Action

Any company that uses consumer reports to make their employment decisions are required by the FCRA to comply with the laid requirements. Any wrong move and you may find your company in a serious legal war.


Even before reaching the adverse action process, the FCRA requires you to disclose your intention to conduct a background check on the candidate. The candidate must provide their consent and be informed that their background check results may potentially affect your decision.


Once the report is out and you have decided they are ineligible, the process of issuing an adverse action notice begins.

Here are the steps you should follow to conduct the right adverse action process.


After you have viewed the background check report and found reasons for dismissing an employee or denying a job to the candidate, you must first issue them with a pre-adverse action letter.


A pre-adverse action letter just informs them about the results and tells them how the report in their background check may negatively affect their employment decision.

However, the purpose of this letter is not to tell them about their disqualification. It only lets them see the results and allows them to contest, correct, if there were any mistakes, or discuss the report with you before you officially take the adverse action.


A pre-adverse action letter must have:


● Information about your intention to take adverse action based on the background check report.

● The rights of the candidate/employee as outlined by the FCRA.

● Have a copy of the report. Otherwise, inform them of their right to request a copy of the agency’s background check report within 60 days.

1. Send Pre-Adverse Action letter Sample of a pre adverse action letter for employment or rental property

DATE
NAME
ADDRESS
Dear (APPLICANT'S NAME):
A decision is currently pending concerning your application for (Add Employment or Housing) at our organization. The purpose of this letter is to inform you that there is information in the investigative consumer report that you authorized in regard to your application for (Add Employment or Housing) , which, if accurate, would prevent us from offering you (Housing or Employment) at this time.
Enc