Section 8 as first applicants... discrimination?

[Aimee Knier]

We run background and credit checks on our tenants. The first tenants that applied for a place we have for rent were section 8. We have developed a policy that we do not accept tenants:
- with misdemeanors less than 8 years old or any felonies (excluding marijuana possession as it's now legal in this state)
- with collections on their credit report less than 8 years old, any evictions no matter how old
- that smoke

He has misdemeanors going back 6 years, they both have collections up to and including this month for bills that are over 9 months unpaid, and the only income they have is section 8 vouchers, her child support, and WIC. Also, she smokes, but she says she doesn't smoke indoors. 

I've already told her that we turned them down because he didn't pass the background check and she jumped in immediately trying to explain what his charges for, then told me they were homeless and that we couldn't discriminate against section 8... what a mess. I finally told her I couldn't speak about it at the moment and she asked me to call her back. 

My question is how do you handle when you've passed on an applicant? What specifically do you tell them? What do you do when they try to explain away their issues because I feel at this point that more information is just more fuel for her to argue, beg, etc.? I'm afraid they're going to push this issue with their case worker and try to force us to take them or try to come after us for discrimination.